10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number:                                           0-24347

THE ULTIMATE SOFTWARE GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware	65-0694077
(State or other jurisdiction of incorporation	(I.R.S. Employer Identification No.)
or organization)

2000 Ultimate Way, Weston, FL	33326
(Address of principal executive offices)	(Zip Code)

(954) 331 - 7000

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the Registrant was required to submit and post such files).  Yes þ  No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  þ	Accelerated filer  o
Non-accelerated filer  o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ Noþ

As of August 2, 2013, there were 27,835,466 shares of the Registrant’s common stock, par value $0.01, outstanding.

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

	Page(s)
Part I – Financial Information:
Item 1 – Financial Statements:
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	1
Unaudited Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2013 and June 30, 2012	2
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2013 and June 30, 2012	3
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and June 30, 2012	4
Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	20
Item 4 – Controls and Procedures	21
Part II – Other Information:
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 6 – Exhibits	22
Signatures	23
Certifications

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PART 1 – FINANCIAL INFORMATION

ITEM 1. Financial Statements

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	As of June 30,			As of December 31,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	81,193		$	58,817
Investments in marketable securities	7,934			9,223
Accounts receivable, net of allowance for doubtful accounts of $575 for 2013 and $475 for 2012	70,713			70,774
Prepaid expenses and other current assets	29,931			25,949
Deferred tax assets, net	1,372			1,372
Total current assets before funds held for customers	191,143			166,135
Funds held for customers	443,875			281,007
Total current assets	635,018			447,142
Property and equipment, net	46,684			38,068
Capitalized software, net	205			508
Goodwill	3,025			3,025
Investments in marketable securities	1,947			1,311
Other assets, net	16,033			16,687
Deferred tax assets, net	19,487			18,543
Total assets	$	722,399		$	525,284
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,368		$	7,584
Accrued expenses	18,522			15,055
Deferred revenue	93,142			90,674
Capital lease obligations	2,764			2,968
Other borrowings	2,258			2,311
Total current liabilities before customer funds obligations	123,054			118,592
Customer funds obligations	443,875			281,007
Total current liabilities	566,929			399,599
Deferred revenue	881			1,302
Deferred rent	2,622			2,777
Capital lease obligations	2,094			2,469
Other borrowings	926			2,601
Income taxes payable	1,866			1,866
Total liabilities	575,318			410,614
Stockholders’ equity:
Series A Junior Participating Preferred Stock, $.01 par value, 500,000 shares authorized, no shares issued or outstanding	—			—
Preferred Stock, $.01 par value, 2,000,000 shares authorized, no shares issued or outstanding	—			—
Common Stock, $.01 par value, 50,000,000 shares authorized, 31,863,119 and 31,396,498 shares issued as of 2013 and 2012, respectively	319			314
Additional paid-in capital	289,898			266,130
Accumulated other comprehensive (loss) income	(675		)	109
Accumulated deficit	(23,917		)	(33,339		)
	265,625			233,214
Treasury stock, 4,053,835 shares, at cost, as of 2013 and 2012	(118,544		)	(118,544		)
Total stockholders’ equity	147,081			114,670
Total liabilities and stockholders’ equity	$	722,399		$	525,284

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.

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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
Revenues:
Recurring	$	80,754		$	64,636		$	158,836		$	125,509
Services	16,392			14,010			35,837			31,034
License	323			531			713			915
Total revenues	97,469			79,177			195,386			157,458
Cost of revenues:
Recurring	22,543			19,235			44,371			38,339
Services	18,030			14,843			37,758			31,366
License	73			120			163			208
Total cost of revenues	40,646			34,198			82,292			69,913
Gross profit	56,823			44,979			113,094			87,545
Operating expenses:
Sales and marketing	22,672			17,472			45,582			36,109
Research and development	16,864			15,989			32,994			31,685
General and administrative	8,285			6,126			17,212			12,271
Total operating expenses	47,821			39,587			95,788			80,065
Operating income	9,002			5,392			17,306			7,480
Other (expense) income:
Interest and other expense	(56		)	(101		)	(136		)	(176		)
Other income, net	6			30			47			43
Total other expense, net	(50		)	(71		)	(89		)	(133		)
Income before income taxes	8,952			5,321			17,217			7,347
Provision for income taxes	(4,050		)	(2,668		)	(7,795		)	(3,670		)
Net income	$	4,902		$	2,653		$	9,422		$	3,677
Net income per share:
Basic	$	0.18		$	0.10		$	0.34		$	0.14
Diluted	$	0.17		$	0.09		$	0.33		$	0.13
Weighted average shares outstanding:
Basic	27,735			26,655			27,606			26,524
Diluted	28,875			28,281			28,812			28,194

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.

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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
Net income	$	4,902		$	2,653		9,422			$	3,677
Other comprehensive (loss) income :
Unrealized (loss) gain on investments in marketable available-for-sale securities, net of income tax expense of $1 for the three months ended June 30, 2013 and June 30, 2012 and net of income tax benefit of $1 for the six months ended June 30, 2012. There was no income tax effect for the six months ended June 30, 2013	(3		)	1			(4		)	(2		)
Unrealized (loss) on foreign currency translation adjustments	(516		)	(212		)	(780		)	(76		)
Other comprehensive (loss), net of tax	$	(519	)	$	(211	)	(784		)	(78		)
Comprehensive income	$	4,383		$	2,442		$	8,638		$	3,599

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financialstatements.

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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	For the Six Months Ended June 30,
	2013			2012
Cash flows from operating activities:
Net income	$	9,422		$	3,677
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	7,742			6,352
Provision for doubtful accounts	1,131			411
Non-cash stock-based compensation expense	15,375			9,217
Income taxes	7,679			3,525
Excess tax benefit from stock-based payments	(8,623		)	(3,302		)
Changes in operating assets and liabilities:
Accounts receivable	(1,070		)	2,108
Prepaid expenses and other current assets	(3,982		)	(1,511		)
Other assets	654			(746		)
Accounts payable	(1,216		)	1,377
Accrued expenses and deferred rent	3,312			3,321
Deferred revenue	2,047			(1,713		)
Net cash provided by operating activities	32,471			22,716
Cash flows from investing activities:
Purchases of property and equipment	(14,069		)	(7,448		)
Purchases of marketable securities	(6,800		)	(7,385		)
Maturities of marketable securities	7,452			5,997
Net purchases of securities with customer funds	(162,868		)	(39,024		)
Net cash used in investing activities	(176,285		)	(47,860		)
Cash flows from financing activities:
Excess tax benefits from stock-based payments	8,623			3,302
Shares acquired to settle employee tax withholding liability	(6,693		)	(4,328		)
Principal payments on capital lease obligations	(1,803		)	(1,613		)
Repayment of other borrowings	(1,728		)	—
Net increase in customer fund obligations	162,868			39,024
Net proceeds from issuances of Common Stock	5,706			5,298
Net cash provided by financing activities	166,973			41,683
Effect of exchange rate changes on cash	(783		)	(76		)
Net increase in cash and cash equivalents	22,376			16,463
Cash and cash equivalents, beginning of period	58,817			46,149
Cash and cash equivalents, end of period	$	81,193		$	62,612
Supplemental disclosure of cash flow information:
Cash paid for interest	$	176		$	138
Cash paid for income taxes	$	265		$	272
Supplemental disclosure of non-cash financing activities:
Ultimate entered into capital lease obligations to acquire new equipment totaling $1.2 million and $2.4 million for the six months ended June 30, 2013 and 2012, respectively.

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.

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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operations

The Ultimate Software Group, Inc. and subsidiaries (“Ultimate,” “we,” “us” or “our”) is a leading provider of cloud-based human capital management (“HCM”). Ultimate's UltiPro software (“UltiPro”) is a comprehensive, easy-to-use solution delivered primarily over the Internet to organizations based in the United States and Canada, including those with global employees. UltiPro is designed to deliver the functionality businesses need to manage the complete employment life cycle from recruitment to retirement.   Ultimate's solutions are marketed as two solution suites based on company size.  UltiPro Enterprise (“Enterprise”) is designed to address the needs of companies with more than 1,000 employees.   UltiPro Workplace (“Workplace”) is designed for companies with 1,000 or fewer employees.  UltiPro is marketed primarily through our Enterprise and Workplace direct sales teams.

2. Basis of Presentation, Consolidation and the Use of Estimates

The accompanying unaudited condensed consolidated financial statements of Ultimate have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The information in this quarterly report should be read in conjunction with Ultimate’s audited consolidated financial statements and notes thereto included in Ultimate’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on February 28, 2013 (the “Form 10-K”).

The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting only of normal, recurring adjustments) which are, in the opinion of Ultimate’s management, necessary for a fair presentation of the information for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Interim results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of operating results for the full fiscal year or for any future periods.

The unaudited condensed consolidated financial statements reflect the financial position and operating results of Ultimate and include its wholly-owned subsidiaries.  Intercompany accounts and transactions have been eliminated in consolidation.

3. Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Summary of Significant Accounting Policies

Ultimate’s significant accounting policies discussed in Note 3 to its audited consolidated financial statements for the fiscal year ended December 31, 2012, included in the Form 10-K, have not significantly changed.

Fair Value of Financial Instruments

Ultimate's consolidated financial instruments, consisting of cash and cash equivalents, investments in marketable securities, funds held for customers and the related obligations, accounts receivable, accounts payable, capital lease obligations and other borrowings, approximated fair value as of June 30, 2013 and December 31, 2012.

Recently Issued and Adopted Accounting Standards

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, “Income Taxes - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). The issuance of ASU 2013-11 generally requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward ("NOLC"), a similar tax loss, or a tax credit carryforward. To the extent a NOLC, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be

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combined with deferred tax assets. The effective date of ASU 2013-11 is for fiscal years, and interim periods within those years, beginning after December 15, 2013. We do not expect the adoption of ASU 2013-11 to have a material impact on our unaudited condensed consolidated financial statements.

On January 1, 2013, we adopted FASB ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). ASU 2013-02 was issued to address concerns raised in the issuance of ASU 2011-05, "Presentation of Comprehensive Income" ("ASU 2011-05"). As a result of the issuance of ASU 2013-02, entities are now required to disclose (i) for items reclassified out of accumulated other comprehensive income ("AOCI") and into net income in their entirety, the effect of the reclassification on each affected net income line item; and (ii) for AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required GAAP disclosures. The adoption of ASU 2013-02 did not have a material impact on our unaudited condensed consolidated financial statements.

4. Investments in Marketable Securities and Fair Value of Financial Instruments

We classify our investments in marketable securities with readily determinable fair values as available-for-sale.  Available-for-sale securities consist of debt and equity securities not classified as trading securities or as securities to be held to maturity.  Unrealized gains and losses on available-for-sale securities are reported as a net amount in accumulated other comprehensive (loss) income in stockholders’ equity until realized.  Realized gains and losses resulting on available-for-sale securities are included in other (expense) income, net in the unaudited condensed consolidated statements of income. There were no significant reclassifications of realized gains and losses on available-for-sale securities to the unaudited condensed consolidated statements of income for the three and six months ended June 30, 2013 and June 30, 2012.

Gains and losses on the sale of available-for-sale securities are determined using the specific identification method.   Included in accumulated other comprehensive (loss) income was $2 thousand of unrealized loss and $1 thousand of unrealized gain, net of tax, on available-for-sale securities at June 30, 2013 and December 31, 2012, respectively.

The amortized cost, net unrealized gain (loss) and fair value of our investments in marketable available-for-sale securities as of June 30, 2013 and December 31, 2012 are shown below (in thousands):

	As of June 30, 2013							As of December 31, 2012
	Amortized Cost		Net Unrealized (Loss) Gain			Fair Value		Amortized Cost		Net Unrealized Gain		Fair Value
Corporate debentures and bonds	$	6,548	$	(1	)	$	6,547	$	5,373	$	1	$	5,374
Commercial paper	1,548		—			1,548		2,448		—		2,448
U.S. Agency bonds	1,272		(1		)	1,271		1,000		—		1,000
U.S. Treasury bills	—		—			—		1,201		—		1,201
Certificates of deposit	515		—			515		511		—		511
Total investments	$	9,883	$	(2	)	$	9,881	$	10,533	$	1	$	10,534

The amortized cost and fair value of the marketable available-for-sale securities by contractual maturity as of June 30, 2013 are shown below (in thousands):

	June 30, 2013
	Amortized Cost		Fair Value
Due in one year or less	$	7,934	$	7,934
Due after one year	1,949		1,947
Total	$	9,883	$	9,881

We classify and disclose fair value measurements in one of the following three categories of fair value hierarchy:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities.

Level 2 - Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

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Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Our assets that are measured by management at fair value on a recurring basis are generally classified within Level 1 or Level 2 of the fair value hierarchy.  The types of instruments valued based on quoted market prices in active markets include certificates of deposit.  Such instruments are generally classified within Level 1 of the fair value hierarchy.   We did not have any transfers into and out of Level 1 or Level 2 during the three and six months ended June 30, 2013 and the twelve months ended December 31, 2012.  No assets or investments were classified as Level 3 as of June 30, 2013 or as of December 31, 2012.

The types of instruments valued by management, based on quoted prices in less active markets, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, include Ultimate’s corporate debentures and bonds, commercial paper, U.S. agency bonds and U.S. Treasury bills.  Such instruments are generally classified within Level 2 of the fair value hierarchy.  Ultimate uses consensus pricing, which is based on multiple pricing sources, to value its fixed income investments. The following table sets forth, by level within the fair value hierarchy, financial assets and liabilities accounted for at fair value as of June 30, 2013 and December 31, 2012 (in thousands):

	As of June 30, 2013								As of December 31, 2012
	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Corporate debentures and bonds	$	6,547	$	—	$	6,547	$	—	$	5,374	$	—	$	5,374	$	—
Commercial paper	1,548		—		1,548		—		2,448		—		2,448		—
U.S. Agency bonds	1,271		—		1,271		—		1,000		—		1,000		—
U.S. Treasury bills	—		—		—		—		1,201		—		1,201		—
Certificates of deposit	515		515		—		—		511		511		—		—
Total	$	9,881	$	515	$	9,366	$	—	$	10,534	$	511	$	10,023	$	—

Assets and liabilities measured at fair value on a recurring basis were presented in the unaudited condensed consolidated balance sheet as of June 30, 2013 and the audited consolidated balance sheet as of December 31, 2012 as short-term and long-term investments in marketable securities.  There were no financial liabilities accounted for at fair value as of June 30, 2013 and December 31, 2012.

5. Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which range from 2 to 20 years. Leasehold improvements and assets under capital leases are amortized over the shorter of the estimated useful life of the asset or the term of the lease, which range from 3 to 15 years. Maintenance and repairs are charged to expense when incurred; betterments are capitalized. Upon the sale or retirement of assets, the cost, accumulated depreciation and amortization are removed from the accounts and any gain or loss is recognized.

Property and equipment as of June 30, 2013 and December 31, 2012 consist of the following (in thousands):

	As of June 30, 2013			As of December 31, 2012
Property and equipment	$	134,507		$	120,390
Less:  accumulated depreciation and amortization	(87,823		)	(82,322		)
Property and equipment, net	$	46,684		$	38,068

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We capitalize computer software development costs related to software developed for internal use in accordance with Accounting Standards Codification ("ASC") Topic 350-40, Intangibles Goodwill and Other-Internal Use Software. During the three and six months ended June 30, 2013, we capitalized $4.0 million and $7.3 million, respectively, of computer software development costs related to a development project to be sold in the future as a cloud product only. There were no such costs capitalized in the three and six months ended June 30, 2012. These capitalized costs are included with computer equipment in property and equipment in the unaudited condensed consolidated balance sheet and purchases of property and equipment in the unaudited condensed consolidated statement of cash flows. Internal-use software is amortized on a straight-line basis over its estimated useful life, generally three to five years, commencing after the software development is substantially complete and the software is ready for its intended use. At each balance sheet date, we evaluate the useful lives of these assets and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

6. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of June 30, 2013 and December 31, 2012 consist of the following (in thousands):

	As of June 30, 2013		As of December 31, 2012
Prepaid commissions	$	18,077	$	16,558
Other prepaid expenses	5,488		4,468
Other current assets	6,366		4,923
Total prepaid expenses and other current assets	$	29,931	$	25,949

7. Computer Software Development Costs

We capitalize computer software development costs related to software developed for external use in accordance with ASC 985-20, Costs of Software to Be Sold, Leased, or Marketed ("ASC 985-20"). There were no research and development expenses capitalized under ASC Topic 985-20 during the six months ended June 30, 2013 and during the six months ended June 30, 2012. Annual amortization is based on the greater of the amount computed using (a) the ratio that current gross revenues for the related product bears to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on.

Capitalized software is amortized using the straight-line method over the estimated useful lives of the assets, which are typically 5 years.  Ultimate evaluates the recoverability of capitalized software based on estimated future gross revenues reduced by the estimated costs of completing the products and of performing maintenance and customer support.  If Ultimate’s gross revenues were to be significantly less than its estimates, the net realizable value of Ultimate’s capitalized software intended for sale would be impaired, which could result in the write-off of all or a portion of the unamortized balance of such capitalized software.

Capitalized software and accumulated amortization of capitalized software as of June 30, 2013 and December 31, 2012 were as follows (in thousands):

	As of June 30, 2013			As of December 31, 2012
Capitalized software	$	11,342		$	11,342
Less:  accumulated amortization	(11,137		)	(10,834		)
Capitalized software, net	$	205		$	508

Amortization of capitalized software was $0.2 million and $0.3 million for the three and six months ended June 30, 2013, respectively, and $0.3 million and $0.7 million for the three and six months ended June 30, 2012, respectively. Amortization of capitalized software is included with cost of recurring revenues in the unaudited condensed consolidated statements of income.

8. Earnings Per Share

Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted average number of common shares outstanding (the denominator) for the period. The computation of diluted earnings

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per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

The following is a reconciliation of the shares used in the computation of basic and diluted net income per share for the three and six months ended June 30, 2013 and 2012 (in thousands):

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012
Basic weighted average shares outstanding	27,735	26,655	27,606	26,524
Effect of dilutive equity instruments	1,140	1,626	1,206	1,670
Dilutive weighted average shares outstanding	28,875	28,281	28,812	28,194
Options to purchase shares of Common Stock and other stock-based awards outstanding which are not included in the calculation of diluted income per share because their impact is anti-dilutive	—	—	5	2

9. Foreign Currency

The financial statements of Ultimate’s foreign subsidiary, The Ultimate Software Group of Canada, Inc. (“Ultimate Canada”), have been translated into U.S. dollars.  The functional currency of Ultimate Canada is the Canadian dollar.  Assets and liabilities are translated into U.S. dollars at period-end exchange rates.  Income and expenses are translated at the average exchange rate for the reporting period.  The resulting translation adjustments, representing unrealized gains or losses, are included in accumulated other comprehensive (loss) income, a component of stockholders’ equity.  Realized gains and losses resulting from foreign exchange transactions are included in total operating expenses in the unaudited condensed consolidated statements of income. There were no significant reclassifications of realized gains and losses resulting from foreign exchange transactions to the unaudited condensed consolidated statements of income for the three and six months ended June 30, 2013 and June 30, 2012.

For the three and six months ended June 30, 2013, Ultimate had cumulative unrealized translation losses of $0.5 million and $0.8 million, respectively. For the three and six months ended June 30, 2012, Ultimate had cumulative unrealized translation losses of $0.2 million and $0.1 million, respectively. Included in accumulated other comprehensive (loss) income, as presented in the accompanying unaudited condensed consolidated balance sheets, are $0.7 million of unrealized translation losses at June 30, 2013 and $0.1 million of unrealized translation gains at December 31, 2012.

10. Stock-Based Compensation

Summary of Plans

Our Amended and Restated 2005 Equity and Incentive Plan (the “Plan”) authorizes the grant of options (“Options”) to non-employee directors, officers and employees of Ultimate to purchase shares of Ultimate’s Common Stock ("Common Stock").  The Plan also authorizes the grant to such persons of restricted and non-restricted shares of Common Stock, stock appreciation rights, stock units and cash performance awards (collectively, together with the Options, the “Awards”).

As of June 30, 2013, the aggregate number of shares of Common Stock that were available to be issued under all Awards granted under the Plan was 1,634,154 shares.

The following table sets forth the non-cash stock-based compensation expense resulting from stock-based arrangements that was recorded in our unaudited condensed consolidated statements of income for the periods indicated (in thousands):

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	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
Non-cash stock-based compensation expense:
Cost of recurring revenues	$	973	$	638	$	1,837	$	1,151
Cost of services revenues	864		665		1,824		1,166
Sales and marketing	3,185		1,772		6,281		3,446
Research and development	816		692		1,586		1,316
General and administrative	1,940		1,096		3,847		2,138
Total non-cash stock-based compensation expense	$	7,778	$	4,863	$	15,375	$	9,217

Net cash proceeds from the exercise of stock options were $2.8 million and $5.7 million for the three and six months ended June 30, 2013, respectively, and $2.5 million and $5.3 million for the three and six months ended June 30, 2012. There was a $4.3 million and a $8.6 million income tax benefit recognized in additional paid-in capital from the realization of excess stock-based payment deductions during the three and six months ended June 30, 2013, respectively, and a $2.4 million and $3.3 million income tax benefit recognized in additional paid-in capital from the realization of excess stock-based payment deductions during the three and six months ended June 30, 2012, respectively.

Stock Option, Restricted Stock and Restricted Stock Unit Activity

There were no stock options granted during the three and six months ended June 30, 2013.  The following table summarizes stock option activity (for previously granted stock options) for the six months ended June 30, 2013 (in thousands, except per share amounts): 

Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2012	1,473		$	22.83	3.80	$	105,447
Granted	—		$	—	—	—
Exercised	(319	)	$	17.89	—	—
Forfeited or expired	—		$	—	—	—
Outstanding at June 30, 2013	1,154		$	24.20	3.60	$	107,458
Exercisable at June 30, 2013	1,154		$	24.20	3.60	$	107,458

The aggregate intrinsic value of stock options in the table above represents total pretax intrinsic value (i.e., the difference between the closing price of Ultimate’s Common Stock on the last trading day of the reporting period and the exercise price times the number of shares) that would have been received by the option holders had all option holders exercised their options on June 30, 2013.  The amount of the aggregate intrinsic value changes, based on the fair value of Ultimate’s Common Stock.  Total intrinsic value of options exercised was $14.4 million and $27.4 million for the three and six months ended June 30, 2013, respectively, and $11.7 million and $21.7 million for the three and six months ended June 30, 2012, respectively. All previously granted stock options were fully vested as of December 31, 2011 and, therefore, no options vested during the three and six months ended June 30, 2013 and June 30, 2012, respectively.  

As of June 30, 2013, there were no unrecognized compensation costs related to non-vested stock options expected to be recognized as all previously granted stock options were fully vested as of December 31, 2011.

During the three months ended June 30, 2013 and June 30, 2012, we granted restricted stock awards for 5,251 shares and 5,501 shares of Common Stock, respectively, to non-employee directors. There were 11,100 and 15,317 restricted stock unit awards granted to employees during the three months ended June 30, 2013 and June 30, 2012, respectively.

During the three months ended June 30, 2013, 9,580 shares of Common Stock previously issued under restricted stock awards vested and were released to non-employee directors.  During the three months ended June 30, 2012, 1,920 shares of Common Stock previously issued under restricted stock awards vested and were released to non-employee directors.  During the three months ended June 30, 2013, there were no shares of Common Stock previously issued under restricted stock awards

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that vested. During the three months ended June 30, 2012, 16,187 shares of Common Stock previously issued under restricted stock awards vested and were released to officers and employees. For the three months ended June 30, 2012, to satisfy employee withholding tax requirements applicable to payment of such awards in the amount of $0.4 million, 5,625 of these shares were acquired by Ultimate, while 10,562 of such shares were released to the holders of such awards.

During the three months ended June 30, 2013, 14,035 shares of Common Stock became payable to officers and employees under restricted stock unit awards that vested and were released during such period.  4,856 of these shares were retained by Ultimate and not issued, in satisfaction of withholding tax requirements applicable to payment of such awards in the amount of $0.5 million, while 9,179 of such shares were issued to the holders of such awards.  During the three months ended June 30, 2012, 12,604 shares became payable to officers and employees under restricted stock unit awards that vested and were released during such period.  4,153 of these shares were retained by Ultimate and not issued, in satisfaction of withholding tax requirements applicable to payment of such awards in the amount of $0.3 million, while 8,451 of such shares were issued to the holders of such awards.

The following table summarizes restricted stock award and restricted stock unit activity for the six months ended June 30, 2013 (in thousands, except per share amounts): 

	Restricted Stock Awards				Restricted Stock Unit Awards
	Shares		Weighted Average Grant Date Fair Value		Shares
Outstanding at December 31, 2012	998		$	64.81	509
Granted	12		$	102.06	193
Vested and Released	(37	)	$	28.50	(180	)
Forfeited or expired	(31	)	$	77.92	(13	)
Outstanding at June 30, 2013	942		$	66.28	509

As of June 30, 2013, $41.9 million of total unrecognized compensation costs related to non-vested restricted stock awards were expected to be recognized over a weighted average period of 2.2 years.  As of June 30, 2013, $30.6 million of total unrecognized compensation costs related to non-vested restricted stock unit awards were expected to be recognized over a weighted average period of 1.9 years.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of The Ultimate Software Group, Inc. and its subsidiaries (“Ultimate,” “we,” “us,” or “our”) should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”) and in conjunction with Ultimate’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2013 (the “Form 10-K”).

Overview

Ultimate is a leading provider of cloud-based human capital management (“HCM”). Ultimate's UltiPro software (“UltiPro”) is a comprehensive, easy-to-use solution delivered primarily over the Internet to organizations based in the United States and Canada, including those with global employees. We attained our leadership position, we believe, through our focus on unified HCM, cloud technology, and strong customer relationships. As of June 30, 2013, we had more than 10 million people records in our HCM cloud.

UltiPro is designed to deliver the functionality businesses need to manage the complete employment life cycle from recruitment to retirement. The solution includes unified feature sets for talent acquisition and onboarding, human resources (“HR”) management and compliance, benefits management and online enrollment, payroll, performance management, salary planning and budgeting for compensation management, succession management, reporting and analytical decision-making tools, and time and attendance. UltiPro has role-based features for HR professionals, executives, managers, administrators, and employees whether they are in or out of the office, including access to business-critical information on mobile devices such as the iPhone, iPad, and other smartphones and tablets.

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Our cloud offering of UltiPro (the “Cloud Offering”) provides Web-based access to comprehensive HCM functionality for organizations that want to simplify delivery and support of their business applications. We have found that our Cloud Offering is attractive to companies that want to focus on their core competencies to increase sales and profits. Through the Cloud Offering, we supply and manage the hardware, infrastructure, ongoing maintenance and backup services for our customers.  Customer systems are currently managed at three data centers — one located in the Atlanta, Georgia area, one in the Phoenix, Arizona area and one in Toronto, Canada. All data centers are owned and operated by independent third parties.

We market UltiPro as two solution suites based on company size. UltiPro Enterprise (“Enterprise”) is designed to address the needs of companies with more than 1,000 employees. UltiPro Workplace (“Workplace”) is designed for companies with 1,000 or fewer employees. UltiPro Workplace provides medium-sized and smaller companies with nearly all the features that larger enterprise companies have with UltiPro, plus a bundled services package. Since many companies in this market do not have information technology (“IT”) staff on their premises to help with system deployment or management issues, we created UltiPro Workplace's bundled services package to give these customers a high degree of convenience by handling system setup, business rules, and other situations for customers “behind the scenes.”  UltiPro is marketed primarily through our Enterprise and Workplace direct sales teams.

In addition to UltiPro's core HCM functionality, our customers have the option to purchase a number of additional features on a per-employee-per-month (“PEPM”) basis, which are available to enhance the functionality of UltiPro's core features and which are based on the particular business needs of the customers.  These optional UltiPro features currently include (i) the talent management suite of products (recruitment, onboarding, performance management, salary planning and budgeting for compensation management, and employee relations tools for managing disciplinary actions, grievances, and succession management); (ii) benefits enrollment; (iii) time, attendance and scheduling; (iv) time management; (v) payment services; (vi) wage attachments; and (vii) other optional features (collectively, “Optional Features”).  All Optional Features are priced solely on a subscription basis.  Some of the Optional Features are available to both Enterprise and Workplace customers while others are available exclusively to either Enterprise or Workplace customers, and availability is based on the needs of the respective customers, the number of their employees and the complexity of their HCM environment.

Our Partners for Life program, introduced in the second half of 2010, is designed to make it easier for customers to leverage the full scope of UltiPro's features and reach more users in our customers' organizations. As part of the Partners for Life program, we changed the pricing method for our implementation services associated with units sold that are not yet processing payroll with UltiPro from a time and materials offering to a fixed fee offering, with the expected objective of lowering the total cost of services charged to each customer.  We still sell implementation consulting services on a time and materials basis but to a lesser degree and primarily in relation to additional business sold to existing clients. The incremental benefit of the Partners for Life program is that we enhance the quality of our customer relationships and encourage increased customer loyalty, thus enhancing the readiness for the customer to be a reference for us.

The key drivers of our business are (i) growth in recurring revenues; (ii) operating income, excluding non-cash stock-based compensation ("Non-GAAP Operating Income"); and (iii) retention of our customers once our solutions are sold (“Customer Retention”).  For the three months ended June 30, 2013, our recurring revenues grew by approximately 25%, compared with the same period in 2012, and our Non-GAAP Operating Income was $16.8 million, or 17.2% of total revenues, as compared with $10.3 million, or 13.0% of total revenues, for the same period last year. For the six months ended June 30, 2013, our recurring revenues grew by approximately 27%, compared with the same period in 2012, and our Non-GAAP Operating Income was $32.7 million, or 16.7% of total revenues, as compared with $16.7 million, or 10.6% of total revenues, for the same period last year. As of June 30, 2013, our Customer Retention exceeded 96%, on a trailing twelve-month basis. See “Non-GAAP Financial Measures” below.

Our ability to achieve significant revenue growth in the future will depend upon the success of our direct sales force and our ability to adapt our sales efforts to address the evolving markets for our products and services.  We provide our sales personnel with comprehensive and continuing training with respect to technology and market place developments.  Aside from sales commissions, we also provide various incentives to encourage our sales representatives, including stock-based compensation awards based upon performance.

The HCM market is intensely competitive.  We address competitive pressures through improvements and enhancements to our products and services, the development of additional features of UltiPro and a comprehensive marketing team and process that distinguishes Ultimate and its products from the competition.  Our focus on customer service, which enables us to maintain a high Customer Retention rate, also helps us address competitive pressures.

As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions.  If general economic conditions were to deteriorate further, we may experience delays in our

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sales cycles, increased pressure from prospective customers to offer discounts and increased pressure from existing customers to renew expiring recurring revenue agreements for lower amounts.  We address continuing economic pressures by, among other things, efforts to control growth of our total expenses through the monitoring of controllable costs and vendor negotiations.

Ultimate has two primary revenue sources:  recurring revenues and services revenues.  Subscription revenues from our Cloud Offering and customer support and maintenance revenues are the primary components of recurring revenues.  The majority of services revenues are derived from implementation consulting services. Subsequent to the discontinuation of selling perpetual licenses of UltiPro to new customers, which occurred in 2009, we sell licenses to existing license customers but only in relation to the customer's employee growth or for Optional Features if the customer already has a perpetual license for the on-site UltiPro solutions.  As perpetual license agreements were sold in the past, annual maintenance contracts (priced as a percentage of the related license fee) accompanied those agreements.  Maintenance contracts typically have a one-year term with annual renewal periods thereafter. Currently, our customer support and maintenance revenues are related to renewal maintenance only.

As cloud units are sold, the recurring revenue backlog associated with the Cloud Offering grows, enhancing the predictability of future revenue streams.  Cloud revenues include ongoing monthly subscription fees, priced on a PEPM basis.  Revenue recognition for the Cloud Offering is triggered when the customer processes its first payroll using UltiPro (or goes “Live”).

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.  Ultimate’s critical accounting estimates, as discussed in "Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations," included in the Form 10-K, have not significantly changed.

Fair Value of Financial Instruments

Ultimate's consolidated financial instruments, consisting of cash and cash equivalents, investments in marketable securities, funds held for customers and the related obligations, accounts receivable, accounts payable, capital lease obligations and other borrowings, approximated fair value as of June 30, 2013 and December 31, 2012.

Results of Operations

The following table sets forth the unaudited condensed consolidated statements of income data of Ultimate, as a percentage of total revenues, for the periods indicated:

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	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
Revenues:
Recurring	82.9	%	81.6	%	81.3	%	79.7	%
Services	16.8		17.7		18.3		19.7
License	0.3		0.7		0.4		0.6
Total revenues	100.0		100.0		100.0		100.0
Cost of revenues:
Recurring	23.1		24.3		22.7		24.3
Services	18.5		18.7		19.3		20.0
License	0.1		0.2		0.1		0.1
Total cost of revenues	41.7		43.2		42.1		44.4
Gross Profit	58.3		56.8		57.9		55.6
Operating expenses:
Sales and marketing	23.3		22.1		23.3		22.9
Research and development	17.3		20.2		16.9		20.1
General and administrative	8.5		7.7		8.8		7.8
Total operating expenses	49.1		50.0		49.0		50.8
Operating income	9.2		6.8		8.9		4.8
Other (expense) income:
Interest expense and other	—		(0.1	)	(0.1	)	(0.1	)
Other income, net	—		—		—		—
Total other expense, net	—		(0.1	)	(0.1	)	(0.1	)
Income before income taxes	9.2		6.7		8.8		4.7
Provision for income taxes	(4.2	)	(3.3	)	(4.0	)	(2.4	)
Net income	5.0	%	3.4	%	4.8	%	2.3	%

The following table sets forth the non-cash stock-based compensation expense resulting from the stock-based arrangements (excluding the income tax effect) that are recorded in our unaudited condensed consolidated statements of income for the periods indicated (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
Non-cash stock-based compensation expense:
Cost of recurring revenues	$	973	$	638	$	1,837	$	1,151
Cost of services revenues	864		665		1,824		1,166
Sales and marketing	3,185		1,772		6,281		3,446
Research and development	816		692		1,586		1,316
General and administrative	1,940		1,096		3,847		2,138
Total non-cash stock-based compensation expense	$	7,778	$	4,863	$	15,375	$	9,217

Revenues

Our revenues are primarily derived from recurring revenues and services revenues.

Total revenues increased 23.1% to $97.5 million for the three months ended June 30, 2013 from $79.2 million for the three months ended June 30, 2012, and 24.1% to $195.4 million for the six months ended June 30, 2013 from $157.5 million for the six months ended June 30, 2012.

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Recurring revenues, consisting of subscription revenues from our Cloud Offering and customer support and maintenance revenues, increased 24.9% to $80.8 million for the three months ended June 30, 2013, from $64.6 million for the three months ended June 30, 2012 and 26.6% to $158.8 million for the six months ended June 30, 2013 from $125.5 million for the six months ended June 30, 2012. The increases for the three and six months ended June 30, 2013 were primarily due to an increase in revenues from our Cloud Offering, partially offset by a decrease in our customer support and maintenance revenues.

• Cloud revenues increased 29.1% for the three months ended June 30, 2013 and 30.7% for the six months ended June 30, 2013, both in comparison to the same periods in 2012. The increases in cloud revenues were based on the revenue impact of incremental units sold that have gone Live since June 30, 2012, including the UltiPro core product and, to a lesser extent, Optional Features of UltiPro.  Recognition of recurring revenues for cloud sales commences when the customer processes its first payroll using UltiPro (or goes "Live").

• Maintenance revenues decreased 8.2% for the three months ended June 30, 2013 and 6.5% for the six months ended June 30, 2013, both in comparison to the same periods in 2012.  The decreases resulted from the transition of certain customers who were formerly using UltiPro in connection with the prior purchase of a perpetual license to using UltiPro under our Cloud Offering, combined with the impact of attrition in the ordinary course of business, partially offset by price increases.  Maintenance revenues are recognized on a monthly recurring basis as the maintenance contracts renew annually.

Services revenues increased 17.0% to $16.4 million for the three months ended June 30, 2013 from $14.0 million for the three months ended June 30, 2012, and 15.5% to $35.8 million for the six months ended June 30, 2013 from $31.0 million for the six months ended June 30, 2012.  The increases in services revenues for the three and six month periods were primarily due to additional implementation revenues from additional billable consultants and, to a lesser extent, increased implementation revenues from third-party implementation partners.

Cost of Revenues

Cost of revenues primarily consists of the costs of recurring and services revenues. Cost of recurring revenues primarily consists of costs to provide maintenance and technical support to Ultimate’s customers, the cost of providing periodic updates and the cost of recurring subscription revenues, including hosting data center costs and, to a lesser extent, amortization of capitalized software. Cost of services revenues primarily consists of costs to provide implementation services and training to Ultimate’s customers and, to a lesser extent, costs related to sales of payroll-related forms and Form W-2 services, as well as costs associated with certain client reimbursable out-of-pocket expenses.

Total cost of revenues increased 18.9% to $40.6 million for the three months ended June 30, 2013, from $34.2 million for the three months ended June 30, 2012. Total cost of revenues increased 17.7% to $82.3 million for the six months ended June 30, 2013 from $69.9 million for the six months ended June 30, 2012.

Cost of recurring revenues increased 17.2% to $22.5 million for the three months ended June 30, 2013 from $19.2 million for the three months ended June 30, 2012, and 15.7% to $44.4 million for the six months ended June 30, 2013 from $38.3 million for the six months ended June 30, 2012. The increases in the cost of recurring revenues for the three and six month periods were primarily due to increases in both cloud costs and customer support and maintenance costs, as described below:

• For the three months ended June 30, 2013, the increase in cloud costs was principally as a result of the growth in cloud operations from increased sales, including increased labor costs and, to a lesser extent, increased hosting data center costs. For the six months ended June 30, 2013, the increase in cloud costs was principally as a result of the growth in cloud operations from increased sales, including increased labor costs, partially offset by decreased hosting data center costs.

• The increases in customer support and maintenance costs for the three and six months ended June 30, 2013, were primarily due to higher labor costs commensurate with the growth in the number of customers serviced.

Cost of services revenues increased 21.5% to $18.0 million for the three months ended June 30, 2013 from $14.8 million for the three months ended June 30, 2012, and 20.4% to $37.8 million for the six months ended June 30, 2013 from $31.4 million for the six months ended June 30, 2012. The increases in cost of services revenues for the three- and six-month periods were primarily due to increases in the cost of implementation, including higher labor and related costs (particularly in association with the increased number of billable consultants) and increased costs of third-party implementation partners.

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Sales and Marketing

Sales and marketing expenses consist primarily of salaries and benefits, sales commissions, travel and promotional expenses, and facility and communication costs for direct sales offices, as well as advertising and marketing costs. Sales and marketing expenses increased 29.8% to $22.7 million for the three months ended June 30, 2013 from $17.5 million for the three months ended June 30, 2012, and by 26.2% to $45.6 million for the six months ended June 30, 2013 from $36.1 million for the six months ended June 30, 2012. The increases in sales and marketing expenses for the three- and six-month periods were primarily due to increased labor and related costs (including higher sales commissions related to increased cloud revenues), and, to a lesser extent, higher advertising and marketing expenses. Commissions on cloud sales are amortized over the initial contract term (typically 24 months) commencing on the Live date, which corresponds with the related cloud revenue recognition.

Research and Development

Research and development expenses consist primarily of software development personnel costs.  Research and development expenses increased 5.5% to $16.9 million for the three months ended June 30, 2013 from $16.0 million for the three months ended June 30, 2012, and by 4.1% to $33.0 million for the six months ended June 30, 2013 from $31.7 million for the six months ended June 30, 2012. The increase in research and development expenses for the three-month period was principally due to higher labor and related costs associated with the ongoing development of UltiPro and Optional Features, including the impact of increased personnel costs (predominantly from additional headcount), net of capitalized labor costs. The increase in research and development expenses for the six-month period was principally due to higher labor and related costs associated with the ongoing development of UltiPro and complementary products, including the impact of increased personnel costs (predominantly from additional headcount), net of capitalized labor costs, and partially offset by decreased third-party consulting costs. During the three and six months ended June 30, 2013, we capitalized a total of $4.0 million and $7.3 million, respectively, (including $0.4 million and $0.8 million, respectively, in non-cash stock-based compensation) for internal-use software costs from a development project that will be offered exclusively as a cloud product only. The majority of the capitalized costs for this development project were direct labor costs and third party consulting fees. There were no capitalized costs for this development project during the three and six months ended June 30, 2012.

General and Administrative

General and administrative expenses consist primarily of salaries and benefits of executive, administrative and financial personnel, as well as external professional fees and the provision for doubtful accounts.  General and administrative expenses increased 35.2% to $8.3 million for the three months ended June 30, 2013 from $6.1 million for the three months ended June 30, 2012, and 40.3% to $17.2 million for the six months ended June 30, 2013 from $12.3 million for the six months ended June 30, 2012.  The increases in general and administrative expenses for the three- and six-month periods were primarily due to higher labor and related costs and an increase in the provision for doubtful accounts.

Income Taxes

Income taxes for the three months ended June 30, 2013 and June 30, 2012 included a consolidated provision of $4.1 million and $2.7 million, respectively.   The effective income tax rate for the three months ended June 30, 2013 and June 30, 2012 was 45.2% and 50.1%, respectively.   Income taxes for the six months ended June 30, 2013 and June 30, 2012 included a consolidated provision of $7.8 million and $3.7 million, respectively. The effective income tax rate for the six months ended June 30, 2013 and June 30, 2012 was 45.3% and 50.0%, respectively. The decreases in the effective income tax rate for the three and six months ended June 30, 2013 were principally due to a benefit attributable to a decrease in nondeductible expenses, primarily related to compensation.

At December 31, 2012, we had approximately $134.5 million of net operating loss carryforwards for Federal income tax reporting purposes available to offset future taxable income.  The $134.5 million was attributable to deductions from the exercise of non-qualified employee, and non-employee director, stock options and the vesting of restricted stock units and restricted stock awards, the tax benefit of which will primarily be credited to paid-in-capital and deferred tax assets when realized.  As a result, the tax benefit associated with stock-based compensation is included in net operating loss carryforwards but not reflected in deferred tax assets.  As of December 31, 2012, we did not have any net operating loss carryforwards for foreign income tax reporting purposes available to offset future taxable income. The carryforwards expire from 2018 through 2032 and from 2013 through 2032, for Federal and state income tax reporting purposes, respectively. Utilization of such net operating loss carryforwards may be limited as a result of cumulative ownership changes in Ultimate’s equity instruments.  The Company's U.S. Federal income tax return for the year ended December 31, 2010 is currently under review by the Internal

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Revenue Service and no issues have come to our attention that would require an adjustment to the income tax liability as reported.

We recognized $20.9 million of deferred tax assets, net of deferred tax liabilities, as of June 30, 2013.  If estimates of taxable income are decreased, a valuation allowance may need to be provided for some or all deferred tax assets, which will cause an increase in income tax expense.  Management continues to apply the exception to the comprehensive recognition of deferred income taxes to the undistributed earnings of our foreign subsidiary, The Ultimate Software Group of Canada, Inc. (“Ultimate Canada”).  Accordingly, deferred income taxes were not recognized on the cumulative undistributed earnings of Ultimate Canada, and were not deemed material.

Liquidity and Capital Resources

In recent years, Ultimate has funded operations from cash flows generated from operations and, to a lesser extent, equipment financing and borrowing arrangements.

As of June 30, 2013, we had $91.1 million in cash, cash equivalents and total investments in marketable securities, reflecting a net increase of $21.7 million since December 31, 2012.  This $21.7 million increase was primarily due to cash provided by operations of $41.1 million (excluding the non-cash impact of the excess tax benefit from stock option exercises) and proceeds from the issuance of Common Stock from employee and non-employee director stock option exercises of $5.7 million, partially offset by cash purchases of property and equipment (including principal payments on financed equipment) of $15.9 million (which includes $6.5 million of primarily capitalized labor costs, paid in cash, associated with an internal-use development project) and cash used to settle the employee tax withholding liability for vesting of restricted stock awards and restricted stock units of $6.7 million.

Our operating cash inflows primarily consist of payments received from our customers related to our Cloud Offering. Our operating cash outflows primarily consist of cash we invest in personnel and infrastructure to support the anticipated growth of our business, payments to vendors directly related to our services, payments under arrangements with third party vendors who provide hosting infrastructure services in connection with our Cloud Offering, related sales and marketing costs, costs of operations and systems development and programming costs. Net cash provided by operating activities increased $9.8 million during the six months ended June 30, 2013 to $32.5 million, as compared with $22.7 million for the six months ended June 30, 2012. This increase was primarily due to an increase in operating income and changes in working capital accounts, after adjusting for the impact of non-cash expenses such as depreciation and amortization and expense associated with stock-based compensation awards.

Net cash used in investing activities was $176.3 million for the six months ended June 30, 2013, as compared with $47.9 million for the six months ended June 30, 2012.  The increase of $128.4 million was primarily attributable to an increase in funds received from and held in our bank accounts on behalf of Ultimate’s customers using the UltiPro Payment Services offering (“UltiPro Payment Services”) of $123.8 million and, to a lesser extent, an increase in cash purchases of property and equipment of $6.6 million. During the six months ended June 30, 2013, we capitalized software development costs related to a cloud-based, internal-use, development project, totaling $6.5 million (excluding the non-cash impact of capitalized stock-based compensation expense), which was classified as property and equipment in accordance with the applicable accounting guidance. Customer funds, temporarily held by us as a result of our UltiPro Payment Services, are held primarily in our bank accounts and invested by us in accordance with our internal investment strategies.   These customer funds are invested in U.S. Government money market funds that invest in short-term, high quality money market instruments which consist of U.S. Treasury and U.S. Government Agency obligations and repurchase agreements collateralized by such obligations.  The money market funds are rated AAA by Standard & Poor's and Aaa by Moody's.

Net cash provided by financing activities was $167.0 million for the six months ended June 30, 2013, as compared with $41.7 million for the six months ended June 30, 2012. The $125.3 million increase was primarily related to an increase of $123.8 million attributable to an increase in UltiPro Payment Services and an increase in excess tax benefits from stock option exercises of $5.3 million, partially offset by an increase of $2.4 million in cash used to settle employee tax withholding liability for vesting of restricted stock awards and restricted stock units and, to a lesser extent, payments on other borrowings of $1.7 million.

Days sales outstanding (or "DSOs"), calculated on a trailing three-month basis, as of June 30, 2013 were 66 days as compared with 62 days as of June 30, 2012. The increase in our DSOs was primarily the result of a higher concentration of sales toward the end of the three-month period ended June 30, 2013.

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Deferred revenues were $94.0 million at June 30, 2013, as compared with $92.0 million at December 31, 2012.  The increase of $2.0 million in deferred revenues was primarily due to increased deferred cloud revenues and increased deferred services revenues, partially offset by decreased deferred maintenance revenues. The majority of the total balance in deferred revenues is related to future recurring revenues, including deferred revenues related to sales of cloud units.

We believe that cash and cash equivalents, investments in marketable securities, equipment financing, other borrowings and cash generated from operations will be sufficient to fund our operations for at least the next 12 months. This belief is based upon, among other factors, management’s expectations for future revenue growth, controlled expenses and collections of accounts receivable.

We did not have any material commitments for capital expenditures as of June 30, 2013.

Off-Balance Sheet Arrangements

We do not, and, as of June 30, 2013, we did not, have any off-balance sheet arrangements (as that term is defined in applicable SEC rules) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Quarterly Fluctuations

Our quarterly revenues and operating results have varied significantly in the past and are likely to vary substantially from quarter to quarter in the future. Our operating results may fluctuate as a result of a number of factors, including, but not limited to, increased expenses (especially as they relate to product development, sales and marketing and the use of third-party consultants), timing of product releases, increased competition, variations in the mix of revenues, announcements of new products by us or our competitors and capital spending patterns of our customers. We establish our expenditure levels based upon our expectations as to future revenues, and, if revenue levels are below expectations, expenses can be disproportionately high. A drop in near term demand for our products could significantly affect both revenues and profits in any quarter. Operating results achieved in previous fiscal quarters are not necessarily indicative of operating results for the full fiscal year or for any future periods. As a result of these factors, there can be no assurance that we will be able to maintain profitability on a quarterly basis. We believe that, due to the underlying factors for quarterly fluctuations, quarter-to-quarter comparisons of Ultimate’s operations are not necessarily meaningful and that such comparisons should not be relied upon as indications of future performance.

Forward-Looking Statements

The foregoing Management’s Discussion and Analysis of Financial Condition and Results of Operations and the following Quantitative and Qualitative Disclosures about Market Risk contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our expectations or beliefs, including, but not limited to, our expectations concerning our operations and financial performance and condition. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that are difficult to predict. Ultimate’s actual results could differ materially from those contained in the forward-looking statements due to risks and uncertainties associated with fluctuations in our quarterly operating results, concentration of our product offerings, development risks involved with new products and technologies, competition, our contractual relationships with third parties, contract renewals with business partners, compliance by our customers with the terms of their contracts with us, and other factors disclosed in Ultimate’s filings with the SEC.  Other factors that may cause such differences include, but are not limited to, those discussed in this Form 10-Q and the Form 10-K, including the risk factors set forth in "Part I, Item 1A, Risk Factors" of the Form 10-K. Ultimate undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

Item 10 (e) of Regulation S-K, "Use of Non-GAAP Financial Measures in Commission Filings," defines and prescribes the use of non-GAAP financial information. Our measure of Non-GAAP Operating Income, which excludes non-cash stock-based compensation, meets the definition of a non-GAAP financial measure.

Ultimate believes that this non-GAAP measure of financial results provides useful information to management and investors regarding certain financial and business trends relating to Ultimate's financial condition and results of operations.

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Ultimate's management uses this non-GAAP result to compare Ultimate's performance to that of prior periods for trend analyses, for purposes of determining executive incentive compensation, and for budget and planning purposes. This measure is used in monthly financial reports prepared for management and in quarterly financial reports presented to Ultimate's Board of Directors. This measure may be different from non-GAAP financial measures used by other companies.

This non-GAAP measure should not be considered in isolation or as an alternative to such measures determined in accordance with GAAP. The principal limitation of this non-GAAP financial measure is that it excludes significant expenses that are required by GAAP to be recorded. In addition, it is subject to inherent limitations as it reflects the exercise of judgment by management about which expenses are excluded from the non-GAAP financial measure.

To compensate for these limitations, Ultimate presents its non-GAAP financial measure in connection with its GAAP result. Ultimate strongly urges investors and potential investors in Ultimate's securities to review the reconciliation of its non-GAAP financial measure to the comparable GAAP financial measure that is included in the table below and not to rely on any single financial measure to evaluate its business.

We exclude the following item from the non-GAAP financial measure, Non-GAAP Operating Income, as appropriate:

Stock-based compensation expense. Ultimate's non-GAAP financial measure excludes stock-based compensation expense, which consists of expenses for stock options and stock and stock unit awards recorded in accordance with Accounting Standards Codification 718, “Compensation - Stock Compensation.” For the three and six months ended June 30, 2013, stock-based compensation expense was $7.8 million and $15.4 million, respectively, on a pre-tax basis. For the three and six months ended June 30, 2012, stock-based compensation expense was $4.9 million and $9.2 million, respectively, on a pre-tax basis. Stock-based compensation expense is excluded from the non-GAAP financial measures because it is a non-cash expense that Ultimate does not consider part of ongoing operations when assessing its financial performance. Ultimate believes that such exclusion facilitates the comparison of results of ongoing operations for current and future periods with such results from past periods. For GAAP net income periods, non-GAAP reconciliations are calculated on a diluted weighted average share basis.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
Non-GAAP operating income reconciliation:
Operating income	$	9,002		$	5,392		$	17,306		$	7,480
Operating income, as a % of total revenues	9.2		%	6.8		%	8.9		%	4.8		%
Add back:
Non-cash stock-based compensation expense	7,778			4,863			$	15,375		9,217
Non-GAAP operating income	$	16,780		$	10,255		$	32,681		$	16,697
Non-GAAP operating income, as a % of total revenues	17.2		%	13.0		%	16.7		%	10.6		%

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

In the ordinary course of Ultimate’s operations, we are exposed to certain market risks, primarily interest rate risk and foreign currency risk.  Risks that are either non-financial or non-quantifiable, such as political, economic, tax, or regulatory risks, are not included in the following assessment of our market risks.

Interest Rate Risk. Ultimate is subject to financial market risks, including changes in interest rates which influence the valuations of our fixed income investment portfolio.  Changes in interest rates could also impact Ultimate’s anticipated interest income from interest-bearing cash accounts, or cash equivalents and investments in marketable securities.  We manage financial market risks, including interest rate risks, in accordance with our investment guideline objectives, including:

• Maximum safety of principal;

• Maintenance of appropriate liquidity for regular cash needs;

• Maximum yields in relationship to guidelines and market conditions;

• Diversification of risks; and

• Fiduciary control of all investments.

Ultimate targets its fixed income investment portfolio to have maturities of 24 months or less.  Investments are held to enhance the preservation of capital and not for trading purposes.

Cash equivalents consist of money market accounts with original maturities of less than three months. Short-term investments include obligations of U.S. government agencies and corporate debt securities.  Corporate debt securities include commercial paper which, according to Ultimate’s investment guidelines, must carry minimum short-term ratings of P-1 by Moody’s Investor Service, Inc. (“Moody’s”) and A-1 by Standard & Poor’s Ratings Service, a Division of The McGraw-Hill Companies, Inc. (“S&P”).  Other corporate debt obligations must carry a minimum rating of A-2 by Moody’s or A by S&P.  Asset-backed securities must carry a minimum AAA rating by Moody’s and S&P with a maximum average life of two years at the time of purchase.

As of June 30, 2013, total investments in available-for-sale marketable securities were $9.9 million.

As of June 30, 2013, virtually all of the investments in Ultimate’s portfolio were at fixed rates (with a weighted average interest rate of 0.4% per annum).

To illustrate the potential impact of changes in interest rates, Ultimate has performed an analysis based on its June 30, 2013 unaudited condensed consolidated balance sheet and assuming no changes in its investments.  Under this analysis, an immediate and sustained 100 basis point increase in the various base rates would result in a decrease in the fair value of Ultimate’s total portfolio of approximately $71 thousand over the next 12 months.  An immediate and sustained 100 basis point decrease in the various base rates would result in an increase in the fair value of Ultimate’s total portfolio of approximately $71 thousand over the next 12 months.

Foreign Currency Risk.  Ultimate has foreign currency risks related to its revenue and operating expenses denominated in currencies other than the U.S. dollar.  Management does not believe movements in the foreign currencies in which Ultimate transacts business will significantly affect future net income.

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ITEM 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.  Ultimate carried out an evaluation, under the supervision and with the participation of Ultimate’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of Ultimate’s disclosure controls and procedures as of the end of the period covered by this Form 10-Q pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, Ultimate’s management, including the CEO and CFO, concluded that, as of June 30, 2013, Ultimate’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in Ultimate’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.  Ultimate’s disclosure controls and procedures were designed to provide reasonable assurance as to the achievement of these objectives.  It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events and thus has inherent limitations.  Therefore, even those systems determined to be effective can only provide reasonable assurance as to the achievement of their objectives.

(b) Changes in internal control over financial reporting.  There have been no changes during the quarter ended June 30, 2013 in Ultimate’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Ultimate’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c)  Purchases of Equity Securities by the Issuer and Affiliated Purchases.

The following table provides information regarding repurchases of Common Stock made by Ultimate during the three months ended June 30, 2013:

	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April	—	—	—	946,165
May	4,856 (2)	$109.95	—	946,165
June	—	—	—	946,165
(1) Under a stock repurchase plan originally announced on October 30, 2000, and subsequently amended from time to time, Ultimate is authorized to repurchase up to 5,000,000 shares of its issued and outstanding Common Stock. As of June 30, 2013, Ultimate had purchased 4,053,835 shares of Ultimate's issued and outstanding Common Stock under our stock repurchase plan, with 946,165 shares being available for repurchase in the future. There were no repurchases of shares of Ultimate's issued and outstanding Common Stock under the stock repurchase plan during the three months ended June 30, 2013.
(2) Represents shares of Common Stock that were acquired by us at the fair market value of the Common Stock as of the period stated, in connection with the satisfaction of our employees' tax withholding liability resulting from the vesting of restricted stock holdings.

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ITEM 6. Exhibits

Number	Description
10.1	Master Services Agreement between Savvis Communications Canada, Inc. and Ultimate, dated April 30, 2013
10.2	Service Schedule between Savvis Communications Canada, Inc. and Ultimate, dated April 30, 2013
10.3	Colocation Services Service Level Attachment between Savvis Communications Canada, Inc. and Ultimate, dated April 30, 2013
31.1	Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2	Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended
101.1	Interactive Data Files pursuant to Rule 405 of Regulation S-T: (i) Unaudited Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012, (ii) Unaudited Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2013 and June 30, 2012, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2013 and June 30, 2012, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and June 30, 2012, and (v) Notes to Unaudited Condensed Consolidated Financial Statements

____________________

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		The Ultimate Software Group, Inc.
Date:	August 8, 2013	By:	/s/ Mitchell K. Dauerman
			Mitchell K. Dauerman
			Executive Vice President, Chief Financial Officer and Treasurer (Authorized Signatory and Principal Financial and Accounting Officer)

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EX-10.1

SAVVIS

A CenturyLink Company

SAVVIS MASTER SERVICES AGREEMENT

EXHIBIT 10.1

Company Name: The ULTIMATE SOFTWARE GROUP of CANADA, INC.,

MSA: MSA1296959

THIS MASTER SERVICES AGREEMENT ("MSA") is

by and between Savvis Communications Canada, Inc. and its affiliates ("Savvis") and THE ULTIMATE SOFTWARE GROUP OF CANADA, INC., a corporation registered in accordance with the laws of Ontario, Canada ("Customer") and is entered into as of the date it is accepted by Savvis following Customer's execution ("Effective Date").

1. Services. Savvis will provide the Services in accordance with the Agreement. The "Agreement" means this MSA plus all applicable Service Schedules, Savvis Service Guides, Service Orders, Statements of Work ("SOWs"), service level agreements ("SLAs") and any other documents that are expressly incorporated herein (collectively "Service Attachments"). Neither party will be bound by any Service Order or SOW unless executed by the parties.

2.Term.The term of the Agreement will commence on the Effective Date and continue until the expiration of the last Service term as set forth in the applicable Service Order or SOW, unless earlier terminated in accordance with the Agreement ("Term").

3.Billing.Billing for each Service shall commence on the Billing Commencement Date ("BCD"), as defined in the applicable Service Schedule. Except as may otherwise be set forth in the applicable Service Order or SOW, (a) monthly recurring charges ("MRCs") will be billed monthly in advance, (b) varying or usage-based charges will be billed monthly in arrears and (c) installation or other non-recurring charges will be billed upon the Billing Commencement Date.

4. Payment.

4.1Invoiced undisputed amounts are due in full within 30 days after the date of electronic receipt of the invoice by Customer ("Due Date"). In addition to the Service charges, Customer will pay all. applicable Taxes. Any undisputed amount not received by the Due Date will be past due and subject to interest at the lesser of one (1 %) percent per month or the highest rate permitted by applicable law and the prevailing party in any such action shall be entitled to reimbursement from the non-prevailing party of attorneys' fees and costs incurred in connection with same. Savvis may, upon 30

days prior notice, require a deposit if Customer has failed to pay its invoices by the Due Date three times in any twelve month period or if there has been a material, adverse change in its financial condition. Savvis may otherwise increase applicable charges as set forth on a particular Service Order or upon prior written notice during any automatic renewal term. Notwithstanding the foregoing, Savvis may not, during the term of a Service Order, increase any charge(s) for those Services purchased pursuant to such Service Order except for power pass through charges, provided increases are not more than once every twelve (12) months and the amount of any such rate increase shall be in proportion to the power utility cost increase approved by the applicable regulatory body.

4.2.To dispute a charge on an invoice, Customer must identify the specific charge in dispute and provide a written explanation of the basis of the dispute by the Due Date. The parties will work in good faith to resolve the dispute. If Savvis determines that a disputed charge is in error, Savvis shall issue a credit or reverse the amount incorrectly billed. If Savvis believes in good faith that a disputed charge was billed correctly, Savvis shall invoke the procedure for dispute resolution pursuant to section 22(a).

5. Compliance and Security. Each party shall comply with all laws and regulations applicable to the provision (in the case of Savvis) and use (in the case of Customer) of the Services provided hereunder. Savvis has adopted and implemented,    and shall maintain throughout the Term, a formal documented corporate information security program designed to comply with applicable laws and protect Customer Data (defined    below)    from loss, misuse and unauthorized access or disclosure. Such program includes    reasonable    administrative, physical    and technical    safeguards,        annual    employee     security awareness training and formal information security policies and/or procedures. To the extent that background checks ·do not violate the laws of the jurisdiction governing this Agreement, for Savvis employees that will have physical access to Customer equipment and Customer Data, Savvis will at the point in time a Canadian employee is hired by Savvis background check such employee. The background check will include a screening to identify

individuals with a criminal record containing a felony conviction and will consist of (i) a Canadian Police Information Centre (CPIC) screening, (ii) an International Employment Verification and (iii) an International Education Verification. Savvis will not relocate Customer equipment containing Customer Data/Assets outside Canada. The Savvis information security program is subject to reasonable changes by Savvis from time to time provided, if such change(s) result in any substantive downgrade of the Savvis security program in existence as of the Effective Date of this Agreement, then Customer may upon thirty (30) days written notice to Savvis, terminate the Agreement without incurring early termination charges; provided the notice will specify the reason for such termination. Customer will ensure that all Customer Data stored or transmitted via the Service complies with all applicable laws and reasonable information security practices, including without limitation those relating to the encryption of data.

5.2    In addition, as of the Effective Date, Savvis has completed a SOC1 (SSAE16/ISAE3402) Type II audit in certain data centers, including but not limited to its data centers located in Montreal, Toronto, and Vancouver, and will continue to conduct such SOC1 Type II audits or audits of a similar standard, of the physical and environmental security controls in those facilities where Customer equipment is located. Such audits will be performed throughout the Term of this Agreement by a recognized third-party audit firm, based on the recognized audit standard SSAE 16, ISAE 3402 or a similar standard, on an annual basis in which the report will cover a period of one year. Savvis shall provide a general SOC Bridge Letter for the period from the Report end through December 31. For avoidance of doubt, Savvis will only provide a general SOC Bridge Letter and will not provide ad hoc Bridge Letters. Savvis shall make available upon request by Customer a copy of the then-available SOCl Type II or equivalent report (the "Report") and Bridge Letter, which Report and Bridge Letter is Savvis Confidential    Information. If    any    annual    Report identifies a material deficiency on a material aspect of the Service, Customer reserves the right to conduct its own audit at its own expense and/or exercise contract        cancellation    or termination    rights after allowing a thirty (30) day period for Savvis to remedy the material deficiency.    Customer may submit requests for the Report on behalf of its customers and prospective customers to Savvis directly by emailing the request to Savvis.        Customer will provide thefollowing information in connection with such request:

(a) Savvis' Customer legal name, (b) Customer

Number, (c)contact info of person receiving Report,

(d) relationship with Customer, (e) Savvis data center where hosted, (f) reason for request. The Customer and the person receiving the Report will execute a Savvis provided NDA before viewing the Report via Savvis' click-through NDA.

SAVVIS HEREBY AGREES THAT IT SHALL PROVIDE SIX (6) MONTHS ADVANCE WRITTEN NOTICE TO CUSTOMER IN THE EVENT SAVVIS INTENDS TO CEASE PERFORMING SOC 1 OR EQUIVALENT AUDITS IN ANY DATA CENTER WHERE CUSTOMER EQUIPMENT IS LOCATED. In the event Savvis fails to provide such notice, or ceases performing SSAE 16 or equivalent audits, Customer may, upon thirty (30) days' notice to Savvis, terminate this Agreement, any and all Service Attachments, and the Services in such data center without liability and without incurring early termination charges.

Savvis acknowledges that Customer engages in an annual ISO 27001 certification audit, or equivalent, for the applicable services provided per data center location. Savvis will provide. reasonable access with reasonable notice from Customer, to appropriate personnel, applicable policies, procedures, physical security . and environmental controls of each data center in which Customer Equipment resides, and those records, logs and reports related to Customer Equipment, to enable Customer and Customer's Auditor to conduct appropriate audits relating to Savvis performance of this Agreement and that demonstrate the existence and adherence to physical security and environmental controls applicable for maintaining ISO certifications, or equivalents. For avoidance of doubt, Savvis does not make any representations regarding ISO certification in the US or Canada.

In the event Customer is required by relevant regulatory authorities or its Customers to conduct audits more frequently, Savvis will make reasonable efforts to accommodate Customer's request provided that Customer promptly provides Savvis such information regarding the regulatory requirement and Customer agrees to pay for audit services.

6.Security Incident Response and Breach Notification. Savvis shall in good faith endeavor to

notify Customer of security incidents as soon as pos ible (but_ not more than twenty-hour (24) hours) of f1rst learnmg of an incident involving an actual or potential security violation involving Customer Data or asset. An "incident" includes any unauthorized acquisition, access, use, or disclosure of Customer a a. Savvis shall inform Customer about security mc1dent response activities in reasonable intervals until the incident is resolved and the parties shall reasonably cooperate with one another in order to comply with any applicable laws regarding notification as a result of an incident involving Customer Data.

7.    Audits Customer may, up to three (3) times eac_h calendar year, at its own expense, perform a rev1ew of the· performance, and service levels of the Service(s) provided under this Agreement ("Service Review"). Savvis shall reasonably cooperate with Customer in its performance of the Service Review and shall make available to Customer documents and records related to the Service(s), provided that such documents are reasonably made available to its customers.    Savvis shall    provide Customer    with reasonable access to the Data Center(s) for the sole purpose of Customer's inspection of the equipment and facilities which are solely dedicated to providing the Service(s) to Customer. For the purposes of clarification, access will be given to areas evidencing physical security controls, environmental controls (including power and air conditioning), and floor space. No access will be given to areas of the Data Center    housing    managed    services    or dedicated customer areas. Such access must be within Savvis' normal business hours and must be scheduled at least ten (10) business days in advance, as mutually agreed upon in good faith by the parties, and Customer shall be escorted by Savvis personnel during this period of access.        Savvis will provide escort support at no additional charge for up to four (4) hours for the first Service Review. Additional time for the first Service review and subsequent Service Reviews within a calendar year shall be subject to reasonable charge and execution of a Service Order executed by the parties. . ,if physical inspection is not permitted or practical, Savvis will review with Customer logical diagrams,        rack    elevations,    and/or    equipment inventory lists documenting in detail the installed Service(s).    The Service Review and any findings related thereto shall be treated by Customer as Confidential Information .. In the event that the parties agree that a problem has been uncovered by a Service Review, Customer may perform a follow-up Service Review within the same calendar year and on the same terms as the initial Service Review.

8.Use of Service.Customer and its End Users will not use or access the Services or any Savvis data center in a manner that: materially interferes with or

harms the Savvis infrastructure or any third parties; or is tortious or violates any third party right. Customer agrees to defend, indemnify and hold Savvis harmless from third party claims, losses; damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees arising from non-compliance with the preceding sentence.

9.Termination.Either party may terminate the Agreement or affected Services (i) upon 30 days prior written notice in the event of a material, uncured breach of the Agreement (unless a different notice period is expressly set forth in the Agreement) ; or (ii) m accordance with any other express term contained in the Agreement. Savvis may suspend the affected Service: (a) upon five (5) days' written notice in the event of any uncured payment default; or (b) upon ten (10) days' notice in the event Customer violates Section 8 except in the case of threat of imminent harm or damage to Savvis, Customer or third party personnel, equipment, or Service or by order of competent    legal    authority;    in which    case    any suspension shall be immediate however Savvis shall provide immediate notice of any such suspension to Custom r as soon as is reasonably practicable, and must remstate the suspended service upon cure of such violation. If Customer terminates an ordered Service prior to its BCD, Customer will pay a cancellation fee equal to one month's projected MRC, plus all non-refundable out-of-pocket costs incurred by or imposed upon Savvis (e.g., ordered equipment licenses, carrier termination charges). If the Service o this Agreement is terminated either by Savvis for cause or by Customer for any reason other than cause prior to the conclusion of the applicable Service Term, then Customer shall be liable for: (a) an early termination charge equal to 50% of the theri current MRC being paid by Customer for the affected Services multiplied by the number of months remaining in the Service term    unless otherwise set forth in an applicable Service Order; (b) Service charges accrued but unpaid as of the termination date; and (c) any on-refundable out-of-pocket costs incurred by or Imposed upon Savvis (e.g., ordered equipment licenses, carrier termination charges). The parties

agree that any cancellation fees and early termination charges set forth in the Agreement constitute liquidated damages based on fairly estimated harm to Savvis and are not intended as a penalty. To the extent the Agreement becomes subject to provisions of the law of the Province of Quebec, the parties hereto agree that such fees and early termination charges represent an assessment. of anticipated damages and the foregoing is a penal cause solely as such term is used in the Civil Code of Quebec, the parties hereto expressly renouncing their rights under Articles 2125, 2126 and 2129 of the Civil Code of Quebec. If a particular Service is terminated upon which another service is dependent, all such dependent services shall be deemed to be terminated as well.

10. Tours. Customer shall have the right to toUr the Facility with its customers and prospective customers upon three (3) business days' advance notice to Savvis so long as such tours are mutually scheduled in good faith by the parties, and are attended by a representative of Customer. Savvis acknowledges as part of this Agreement that Customer shall have its customers inspect and tour the Facility. Subject to the limitations set forth in this Section, Savvis will permit such tours. Customer and its customers and prospective customers must at all times comply with Savvis's security policies and procedures.

10.Representations and Warranties.Each party represents and warrants, and covenants that, as of the Effective Date and at all times during the Term of this Agreement, it is duly organized, in good standing and legally qualified to do business in the jurisdiction in which the Savvis Premises designated for use by Customer are located (and has all required licenses, permits and other such items), and that this Agreement has been fully authorized by each party and no further approvals are required. Savvis further represents and warrants that the Services rendered pursuant to this Agreement shall be performed in accordance with the applicable SLAs, which provide Customer's sole and exclusive remedies for any Service deficiencies, and in accordance with any and all applicable laws, codes, rules, regulations or other governmental or regulatory requirements.

11.Disclaimer of Warranties.THE FOLLOWING DISCLAIMERS SHALL NOT LIMIT CUSTOMER'S ABILITY TO SEEK ANY APPLICABLE SLA REMEDIES INCLUDING BUT NOT LIMITED TO CREDITS AND TERMINATION RIGHTS CONTAINED IN SUCH SLA. THE SERVICES AND ANY RELATED EQUIPMENT, EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, SOFTWARE AND OTHER MATERIALS PROVIDED BY SAVVIS IN CONNECTION WITH THE SERVICES ARE PROVIDED WITHOUT ANY WARRANTIES OF ANY KIND, WHETHER STATUTORY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, WARRANTIES OF TITLE,

NONINFRINGEMENT, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ACCURACY, COMPLETENESS, COMPATIBILITY OF SOFTWARE OR EQUIPMENT, OR ANY RESULTS TO BE ACHIEVED THEREFROM. SAVVIS MAKES NO WARRANTIES OR REPRESENTATIONS THAT ANY SERVICE WILL BE FREE FROM LOSS OR LIABILITY ARISING OUT OF HACKING OR SIMILAR MALICIOUS ACTIVITY, OR ANY ACT OR OMISSION OF THE CUSTOMER.

12.Limitation on Liabilitv. (a) EXCEPT FOR BREACH OF CONFIDENTIALITY OBLIGATIONS, INDEMNIFICATION, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, NEITHER PARTY, NOR ITS AFFILIATES, CONTRACTORS, SUPPLIERS OR AGENTS, SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, RELIANCE, PUNITIVE, CONSEQUENTIAL DAMAGES, ANY LOST OR IMPUTED PROFITS OR REVENUES, REGARDLESS OF THE LEGAL THEORY UNDER WHICH SUCH LIABILITY IS ASSERTED, AND REGARDLESS OF WHETHER A PARTY HAD BEEN ADVISED OF THE POSSIBILITY OF. SUCH LIABILITY. EXCEPT FOR BREACH OF CONFIDENTIALITY OBLIGATIONS, SAVVIS' INDEMNIFICATION OBLIGATION UNDER SECTION 13 (INTELLECTUAL PROPERTY INFRINGEMENT) (BUT WHICH IS SUBJECT TO SUBSECTION 12(b) BELOW), GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AND CUSTOMER'S PAYMENT OBLIGATIONS HEREUNDER AND CUSTOMER'S OBLIGATIONS SET FORTH IN SECTION 8 (BUT WHICH ARE SUBJECT TO SUBSECTION 12(b) BELOW), THE TOTAL AGGREGATE LIABILITY OF EACH PARTY ARISING FROM OR RELATED TO THIS AGREEMENT SHALL BE LIMITED TO TWENTY FOUR (24) TIMES THE MONTHLY RECURRING CHARGES PAID OR PAYABLE IN THE MONTH IMMEDIATELY PRECEDING THE DATE IN WHICH THE CLAIM ARISES ("GENERAL LIABILITY CAP").

(b) NOTWITHSTANDING THE LIMITATIONS ON

DAMAGES SET FORTH IN SUBSECTION 12(a) ABOVE, THE GENERAL LIABILITY CAP WILL NOT APPLY (AND NO CAP WILL APPLY) TO: (i) SAVVIS' INDEMNIFICATION OBLIGATIONS UNDER SECTION 13, TO THE EXTENT ARISING FROM CUSTOMER'S USE OF SAWIS-OWNED TECHNOLOGY; OR (ii) CUSTOMER'S INDEMNIFICATION OBLIGATIONS UNDER SECTION 8 TO THE EXTENT ARISING FROM THIRD PARTY CLAIMS FOR PERSONAL INJURY OR PROPERTY DAMAGE. THE TOTAL AGGREGATE LIABILITY OF SAVVIS WITH RESPECT TO ITS INDEMNIFICATION OBLIGATIONS UNDER SECTION 13 (INTELLECTUAL PROPERTY INFRINGEMENT) TO THE EXTENT ARISING FROM CUSTOMER'S USE OF THIRD­ PARTY TECHNOLOGY OR MATERIALS PROVIDED BY SAVVIS IN CONNECTION WITH THE SERVICES, AND THE TOTAL AGGREGATE LIABILITY OF CUSTOMER WITH RESPECT TO . ITS INDEMNIFICATION OBLIGATIONS UNDER SECTION 8 (EXCEPT WITH RESPECT TO THIRD PARTY PERSONAL INJURY OR PROPERTY DAMAGE), SHALL BE LIMITED TO THIRTY SIX (36) TIMES THE MONTHLY RECURRING CHARGES PAID OR PAYABLE IN THE MONTH IMMEDIATELY PRECEDING THE DATE IN WHICH THE CLAIM ARISES ("SPECIAL CAP").

13.lntellectual Property Infringement. Savvis shall, at its own expense, including attorneys' fees and costs, defend, indemnify and hold Customer harmless against any claim, demand or suit made or brought against Customer by a third party alleging that Customer's use of the Services as allowed hereunder

·infringes, violates or misappropriates the patent, copyright, trade secret, trademark rights, or other intellectual property right of a third party and Savvis shall pay any costs of settlement or any damages finally awarded against Customer. Savvis shall have no obligation hereunder to the extent that a claim arises from (a) the combination, use or operation of any Services with any service or product not provided by Savvis (other than combinations approved in writing by Savvis) provided that such infringement or violation would have been avoided without such combination, use or operation; (b) any modification of the Services made by Customer or by any party at Customer's direction provided that such infringement or violation would have been avoided without such modification ; (c) use by Customer of other than the then current unaltered release of any software used in the Services provided that such infringement or violation would have been avoided without such use, or (d) use or operation by Customer or its agents or contractors of the Service other than in accordance with this Agreement. This Section 13 provides the sole and exclusive obligations and remedies of the parties in connection with any third party claim, suit or other demand described herein.

14.Confidentiality.Neither party shall, without the prior written consent of the other party, use or disclose, disseminate, communicate, directly or indirectly, the Confidential Information of the other party during the Term of this Agreement and for five

(5) years following the expiration or termination hereof. Each party will take all reasonable precautions to protect the other party's Confidential Information, using at least the same protections and standard of care as it uses to maintain the confidentiality of its own Confidential Information. Notwithstanding the foregoing, a party may disclose Confidential Information: (i) to any consultants, contractors, and counsel who have a need to know in connection with this Agreement and have executed a reasonably protective non-disclosure agreement, containing the at least the same degree of protection of Confidential Information as in this Agreement, with the disclosing party, or (ii) pursuant to legal process; provided that, the disclosing party shall, unless legally prohibited, provide the non-disclosing party with reasonable prior written notice sufficient to permit it an opportunity to contest such disclosure.

15.Governing Law.This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein, without regard to its principles for resolving conflicts of law. In the event of litigation, each party expressly waives its right to have its claims or defenses heard by a jury.

16.Force Majeure. Neither party will be liable for any failure or delay in its performance under the Agreement (other than a failure to comply with payment obligations) due to an event beyond a party's reasonable control ("Force Majeure Event"). If a Force Majeure Event prevents the provision of Service for a period of 30 days, either party may terminate the affected Service by providing 30 days written notice to the other party.

17.Notices. All notices required to be given hereunder shall be in writing and deemed given if sent to the addressee specified below either (a) by registered international mail with delivery

confirmation, return receipt requested, postage prepaid, three days after such mailing; or (b) by national or international overnight courier service, the next business day. Customer's Service disconnect, termination or non-renewal notices must include an additional copy to Attn: Client Solutions, 2355 Dulles Corner Blvd., Ste. 300, Herndon, VA 20171. Other routine operational notices (e.g., notice reminder of non-payment) may be sent via facsimile or email and will be deemed given on the day such notice is delivered.

To Savvis:

Savvis Communications Canada, Inc.

6800 Millcreek Drive

Mississauga, Ontario L5N 4J9

Canada

Attn: Legal

To Savvis:

Savvis Communications Corporation

1Savvis Parkway St Louis, Missouri United States 63017

Attn: General Counsel

To THE ULTIMATE SOFTWARE GROUP OF CANADA, INC.:

THE ULTIMATE SOFTWARE GROUP OF CANADA,

INC.,

C/0 2000 ULTIMATE WAY

WESTON, Florida United States 33326

Attn: General Counsel

18.Insurance.Each party shall carry and maintain during the Term, at its own cost and expense, insurance, as follows (and provide the other with proof upon request): for Customer, commercial general liability $1 million per occurrence and $2 million aggregate; and for Savvis, $10 million per occurrence and aggregate for commercial general liability;

19.Maintenance.Customer acknowledges that the Services may be subject to routine maintenance or repair and agrees to reasonably cooperate in a timely manner and provide reasonable access and assistance as necessary to allow such maintenance or repair.

20.Waiver.Except as otherwise expressly set forth in the Agreement, neither party's failure to insist upon strict performance of any provision of the Agreement shall be construed as a waiver of any of its rights hereunder. Neither the course of conduct between parties nor trade practice shall act to modify any provision of the Agreement. To the extent the Agreement becomes subject to provisions of the law of the Province of Quebec, the parties hereto expressly renounce their rights under Articles 2100, 2102-2104 (inclusive), 2107-2109 (inclusive), 2111 and 2113-2115 (inclusive) of the Civil Code of Quebec.

21.Language.The parties have expressly required that this Agreement and all document and notices relating hereto be drafted in English only. Les parties aux presentes ant expressement exige que Ia presente

convention et tous les documents et avis qui y sont afferents soient rediges en anglais seu/ement.

22.Dispute Resolution.The parties will attempt in good faith to resolve all disputes, disagreements or claims relating to this Agreement or any Service Attachment.

(a) Billing Disputes.    To dispute a charge on an invoice, Customer must identify the specific charge in dispute and provide a written explanation of the basis of the dispute by the Due Date. Customer may withhold payment of a charge subject to good faith dispute provided (i) Customer pays the undisputed portion of all charges by the Due Date; and (ii) Customer cooperates reasonably with Savvis' efforts to investigate and resolve the dispute. If Savvis determines that a disputed charge is in error, Savvis shall issue a credit or reverse the amount incorrectly billed. If Savvis determines in good faith that a disputed charge was billed correctly, Customer's payment shall be due no later than ten (10) days after Savvis provides notice of such determination. If Customer disputes Savvis' findings the parties agree to have senior management from each party meet within ten (10) days to mediate the dispute. If, after senior management from both parties meet Savvis determines in good faith that a disputed charge was billed correctly, Customer's payment shall be due no later than ten ( 10) days after Savvis provides notice of such determination. If a billing dispute still exists, each party shall have the right to commence any legal proceeding as permitted by law. (b) Other Disputes. Except with respect to billing disputes, which is

covered under subsection (a) above, and in situations in which injunctive relief is necessary, if any dispute arises between the parties in connection with this Agreement,. the disputed matter shall be referred to the parties' respective executives who are responsible for administration of this Agreement for resolution. In the event these executives fail to resolve the dispute within fifteen ( 15) days after the referral of the dispute to them, or such longer period as agreed to in writing by the parties, each party shall have the right to commence any legal proceeding as permitted by law.

Each party waives any right to a jury trial in any proceeding arising out of or related to this Agreement or any Services Transaction.

23.Savvis Responsibilities.Savvis will use reasonable efforts to cause the Savvis data centre (the "Facility") to be maintained in efficient working order in accordance with this Agreement. Savvis will, except for emergency situations, give Customer seven

(7) business days' notice in writing electronically and via the Savvis portal prior to initiating a planned maintenance operation, of the timing and scope of such planned maintenance operation. Savvis will use all reasonable efforts to conduct planned maintenance outages, if any, of the Facility during the maintenance windows as defined in the Savvis Customer Guide and Information Handbook.

24.Miscellaneous. All provisions in the Agreement which by their nature are intended to survive expiration or termination shall so survive. If any term of    the    Agreement    is    held    unenforceable,    the unenforceable term shall be construed as nearly as possible to reflect the original intent of the parties and. the remaining terms shall remain in effect. The Agreement is intended solely for Savvis and Customer and does not provide any third party with any right or benefit. Neither party may assign this Agreement or any portion hereof without the other party's prior written    consent,    which    consent    shall    not    be unreasonably withheld or delayed. Notwithstanding the foregoing, either party may assign this Agreement or a portion thereof: (i) in the event of a merger in which the party is not the surviving entity; (ii) in the event of a sale of all or substantially all of its assets; or (iii) to any party that controls, is controlled by or is in common control with such party without the consent of the other party. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. In the event of conflict among terms, the order of priority shall be as follows: the Service Schedule, then this MSA, then the SSG, and then the Service. Order with the latest date. Except as otherwise set forth herein, all amendments to the Agreement shall be in writing and signed by the parties' authorized representatives. This MSA together with all applicable Service Attachments constitutes the entire agreement of the parties with respect to the Services and supersedes any other prior or contemporaneous agreement or understandings, whether oral or written, related to the subject matter hereof. All handwritten or typed modifications to the Agreement which are not mutually agreed to in writing are null and void. Savvis will be responsible for the acts or omissions of its subcontractor and agents who perform services in connection with the provision of Services to Customer hereunder, to the same extent that Savvis is responsible to Customer under this Agreement.

25. Definitions.

"Confidential        Information"        means            non-public information of the parties hereto relating to their business    activities,    financial    affairs,    technology, marketing or sales plans that is exchanged by the parties in the formation and implementation of

the Agreement. Confidential Information includes the terms and pricing of the Agreement. Confidential Information includes any information that is non­ public information of a party, and anything which by virtue of its nature would naturally be considered to be confidential information, including but not limited to the parties' business, operations and, plans, its processes,    trade    secrets,    names,        and        personal information of any other kind of a party, and its respective        employees,    and        specifically        includes customer lists, and prospective customer lists, of either party; provided, to the extent Confidential Information is also Customer Data, as defined below, then, (except for the willful misconduct or intentional acts of Savvis employees, personnel, subcontractors or agents), Savvis' obligations with respect to such Customer Data will be set forth in Section 5 only, and not    subject    to    Section        14    (Confidentiality). Confidential Information shall not include information which, when the receiving party can prove by documentation reasonably acceptable to disclosing party: (i) is or becomes public knowledge through no breach of the Agreement by the receiving party, (ii) is received by recipient from a third party not under a duty of confidence, or (iii) is already known or is independently developed by the receiving party without use of the Confidential Information.

"Customer Data" means any data or other information or materials of any kind provided by Customer for storage or service under this Agreement, whether owned by Customer, its customers or other third parties.

"End Users" means Customer's end-users, customers, agents or any other third parties who utilize or access the Services or Savvis data centers via the Services provided hereunder.

"Savvis Service Guide" (or "SSG") means the product-specific Service guide that includes technical specifications which can be found at http://www.savvis.net/ssg, which Savvis may modify from time to time, effective upon posting on the website.

"Service" means the service provided by Savvis and/or its licensors and contractors as set forth on the Service Order of SOW.

"Service Order" means a service order request submitted on a form issued by Savvis and signed by Customer that includes the type and details of the specific Services ordered by Customer.

"Service Schedule" means those service descriptions providing additional terms pursuant to which Savvis will provide and Customer shall purchase the Services described therein.

"SLA Attachment" means the attachment that sets forth the SLA applicable to each individual Service, if any, which provides Customer's sole and exclusive remedies for an Service quality or performance deficiencies or failures of any kind (e.g., uptime, latency). To clarify, such sole and exclusive SLA remedies shall not apply to breaches of unrelated obligations under the Agreement such as infringement, confidentiality, etc. Savvis may modify SLAs during a renewal term upon 60 days' written notice.

"Taxes" means any applicable foreign, federal, state, provincial, or local taxes and charges assessed or incurred in connection with the Service, including without limitation, all governmental excise, use, sales, value-added, or occupational levies and environmental assessments or charges, regulatory administration and similar pass through fees, and other similar surcharges and levies, but excluding any taxes based on Savvis' net income.

The parties have read and agree to the terms of this MSA and any applicable Service Attachments, all of which are made a part of the Agreement.

SAVVIS Communications Canada, Inc.

Name: /s/ James Parker

Title:

Date: 4/30/2013

THE ULTIMATE SOFTWARE GROUP OF CANADA, INC.

Name: /s/ Robert Manne

Title:      Vice President

Date: 3/28/2013

EX-10.2

SAVVIS

A CenturyLink Company

EXHIBIT 10.2

Company Name: The Ultimate Software Group of Canada, Inc.,

MSA: MSA1296959

    Schedule: SCHED1296959-001     

SAVVIS SERVICE SCHEDULE

1.Services/Rates. This Service Schedule ("Service Schedule") is made part of that certain Savvis Master Services Agreement of even date herewith (the "Agreement") by and between Savvis Communications Canada, Inc. and The Ultimate Software Group of Canada, Inc. ("Customer") and sets forth the terms generally applicable across all of the services provided hereunder ("Services"), as well as terms applicable only to specific Services as noted herein. Customer will pay all applicable rates and fees set forth in the relevant Service Order and/or Statement of Work ("SOW").

2.Term. Services have a minimum term which begins on the Billing Commencement Date ("BCD") and continues for the period set forth in the relevant Service Order or SOW (the "Initial Term"), at the conclusion of which, the Service will automatically renew for successive one month periods, unless terminated by either party in writing at least 60 days prior to the expiration of the then-current Service Term. The Initial Term and any renewal terms are collectively referred to as the "Service Term".

3.Separate Billing. Notwithstanding anything to the contrary in the Agreement, if Savvis partially installs or activates a Service, Savvis reserves the right to

commence billing for such Service on a pro rata basis.

Notwithstanding anything to the contrary in the

Agreement, if a Service installation is delayed,

incomplete or is not usable by Customer through no fault of Savvis or its agents, Savvis will have the right to commence billing as installed and per the BCD.

4.Billing Commencement Date (BCD). The BCD for the Service is the earlier of (i) the date on which Customer uses (except during the Acceptance Period) the Service or (ii) the date Savvis notifies Customer in writing that the initial installation or a usable part thereof (such as a data circuit between two points or an individual data center installation on a multi-data center project) is complete, provided that, in the case of a completion of a usable part only, Customer will be billed only for such usable part. Customer shall have five (5) business days after such use or notification to notify Savvis of any deficiency ("Acceptance Period").

Such notice shall include a written description that specifically demonstrates the deficiency in Service to the reasonable satisfaction of Savvis. The Service shall be deemed accepted unless Customer provides

Savvis with notice to the contrary during the Acceptance Period. Upon timely notice to Savvis of a deficiency, (i) Savvis will remedy the Service deficiency and provide Customer notification of such remedy at which time a new Acceptance Period shall begin, and (ii) Savvis will delay billing until accepted in accordance with this provision.

5.Intellectual Property. Nothing in the Agreement or the performance thereof shall convey, license, or otherwise transfer any right, title, or interest in any intellectual property or other proprietary rights held by either party or its licensors. Savvis' intellectual property and proprietary rights include any skills, know-how, modifications or other enhancements developed or acquired in the course of configuring, providing, or managing the Service. Each party agrees that it will not, directly or indirectly, reverse engineer, decompile, reproduce or otherwise attempt to derive source code, trade secrets, or other intellectual property from any information, material, or technology of the other party or its licensors.

6.Equipment. If the Service includes access to or the use of equipment or software provided by Savvis or its licensors ("Savvis Equipment"), Customer: (a) will not assert any ownership interest whatsoever in the Savvis Equipment; (b) will not cause any liens, claims and encumbrances to attach to the Savvis Equipment; (c) shall protect and use all Savvis Equipment in accordance with the Agreement; and (d) reasonably cooperate with Savvis to allow installation, maintenance and, upon termination, removal of the Savvis Equipment. Unless otherwise set forth in the applicable SSG or Service Order, Customer is responsible for selecting, supplying, installing and maintaining any equipment used in connection with the Service and not provided by Savvis ("Customer Equipment") including any related applications, systems, or software.

SERVICE TYPE #1: COLOCATION SERVICES

Notwithstanding anything to the contrary in the MSA, Savvis may increase the rates associated with existing Colocation Service at any time after twelve months of the initial Installation Date for such Service, and no more than once every twelve· months, in order to pass through increases in such Service's underlying power facility

costs and such increase shall be effective upon the date set forth in Savvis' written notice thereof to customer. The amount of any such rate increase shall be in proportion to the power utility cost increase approved by the applicable regulatory body.

Customer or Customer's employees,agents, contractors, or End Users who access any Savvis data center or other Savvis facility (a "Savvis Premises") on Customer's behalf ("Authorized Representatives") must be designated in writing. Customer, its Authorized    Representatives and all Customer Equipment and any related materials    used in connection with the Service shall comply with all data center operating policies (including the "Savvis Customer Handbook and    Information Guide" ("Customer Guide")), a current copy of which is located on www.SAVVISstation.com and which Savvis may change from time to time. If Savvis modifies its Customer Guide, except as required by law or regulation, or industry standard ("Customer Guide Change"L and the Service is materially and adversely affected by the Customer Guide Change, Customer may, within fifteen (15) business days of the date Savvis notifies Customer in writing of the Customer Guide Change ("Customer    Guide Change    Notice Period"), send written notice to Savvis indicating the Service affected and including details sufficient to demonstrate the adverse material effect on Customer ("Customer Guide Change Notice").     Savvis will, within thirty (30) days of receipt of the Customer Guide Change Notice, review the notice and notify Customer whether Savvis agrees or disagrees with Customer's assertion. If Savvis agrees that the Customer Guide Change materially and adversely affects the Customer use of Service, Customer Guide may agree to waive the applicability of the Customer Guide Change to Customer, provided that any such waiver shall not be made by Savvis until the parties execute an amendment to the Agreement setting forth the terms of the waiver. If Savvis does not agree to the waiver, Customer may thereafter accept such Customer Guide Change or, no later than five (5) business days from the date of Savvis' response, terminate the Services directly affected by the Customer Guide Change by written notice to Savvis, and Customer shall not be liable for the early termination charges. If Savvis reasonably believes that Customer is not in material compliance with this Section, Savvis will notify Customer thereof in writing and Customer shall remedy such non-compliance within 5 business days of receiving such notice, except in the case of threat of imminent harm or damage to Savvis, Customer or third party personnel, equipment, or Service or by order of competent legal authority; in which case any suspension shall be immediate, however Savvis shall provide immediate notice of any such suspension to Customer as soon as is reasonably practicable, and must reinstate the suspended service upon remedy of such non­ compliance . If Customer fails to remedy such non­ compliance within such period, then, notwithstanding any other rights in the MSA, Savvis may immediately

(i) suspend the Service and/or restrict Customer's access to the Savvis Premises for so long as deemed

reasonably necessary by Savvis in good faith or (ii) terminate the affected Service if such non-compliance is recurring. Savvis may likewise restrict access to the Savvis Premises if Customer fails to timely cure any material breach of the Agreement.

Subject to the rest of this Section, Savvis may enter the space within a Savvis Premises specifically identified as available to Customer for the placement and operation of the Customer Equipment ("Customer Area") and/or access Customer Equipment only to the extent necessary to provide a Service or otherwise exercise its rights under the Agreement. If Customer Equipment needs to be moved to another area within the same Savvis Premises or to another Savvis Premises due to either Customer's requirements for additional space or upon mutual written agreement of the parties with such consent not unreasonably withheld, for Savvis' reasonable business needs, the parties will cooperate to complete and minimize the impact of the relocation. Savvis may temporarily store Customer Equipment pending its installation at a Savvis Premises ("Equipment Storage"). If Equipment Storage continues for more than 30 days, Savvis may return, at Customer's expense, the Customer Equipment. The risk of loss or damage for any Customer Equipment during any Equipment Storage shall be upon Customer other than as caused by the gross negligence or willful misconduct of Savvis. If any Authorized Representative or Customer Equipment presents any material risk of harm to

Savvis, its employees, agents, contractors, or customers, or the Savvis Premises, Customer shall, upon notice, take prompt action to eliminate such risk. If Customer fails to do so as soon as reasonably practical under the circumstances, or if there is risk of material and imminent harm, Savvis may, without prior notice or liability to Customer, take appropriate action itself, including accessing the Customer Area; provided, however, that Savvis will notify Custpmer of such action as soon as reasonably practicable. Neither party, nor its Authorized Representatives or its Equipment will cause personal injury or property damage at a Savvis Premise.

Customer shall within five (5) business days of the end of the Service Term: (a) remove all Customer Equipment and any ·other Customer property ("Customer Materials") from the Savvis Premises; and

(b) return the Customer Area to Savvis in the same condition as it was on the BCD, normal wear and tear

excepted. If Customer fails to remove the Customer Materials within such period or if Customer has an outstanding balance at the end of the Service Term, Savvis may remove any Customer Materials (without liability) and either: (a) store it at Customer's expense until Customer remits all amounts owed (including storage expenses) or (b) ship such Customer Materials FOB Origin to Customer at Customer's last address of record.

Unless otherwise agreed in writing by Savvis, in its sole discretion, Customer shall only interconnect Customer

Equipment to the network services of Savvis, Savvis equipment or facilities or third party services made available through Savvis.

This is a service agreement and does not constitute a lease of any real or immovable property or create any rights as a tenant or any rights in real or immovable property. Customer has been granted only a license to occupy the Customer Area and use the Savvis Premises and any Savvis Equipment in accordance with the Agreement and agrees that this Schedule, to the extent it involves the use of space leased by Savvis, shall be subordinate to any lease between Savvis and its landlord(s). Customer hereby waives and releases any claims that it may have against the landlord(s) under any lease by Savvis with respect to any Customer Equipment or property located in the Savvis    Premises    demised    to .Savvis    by    such landlord(s). If the Savvis Premises becomes the subject of an expropriation or a taking by eminent domain by any authority having such power, Savvis shall have the right to terminate any or all of the affected Services without liability; provided, however, that Savvis will use commercially reasonable efforts to move Customer to another, comparable Savvis Premises prior to exercising such termination right. Savvis shall have the right to terminate any or all of the Services without liability of any kind on the earlier of (i) the expiration of or earlier termination of Savvis' underlying lease for the Savvis Premises, or (ii) expiration or earlier termination of this Service Schedule. Savvis hereby represents and warrants that the expiration date of any such underlying lease is later than the expiration of the Initial Term of the Agreement. The parties agree that any renewal of the Services shall be contingent on the election by Savvis, in its sole discretion, to continue to own or lease the Savvis Premises.

SERVICE TYPE #2: HOSTING SERVICES

If a particular Service does not require "installation", the BCD will be the date on which Savvis begins providing such Service.

SERVICE TYPE #3: NETWORK SERVICES

Savvis Equipment

If any Savvis Equipment will be located at a Customer premises or other non-Savvis location or facility ("Customer Site"), Customer agrees: (a) that it has and shall maintain all rights, authorizations and consents necessary to enable Savvis to install, operate and maintain the Savvis Equipment and Services at the Customer Sites; (b) that it shall, at its expense, provide secure, suitable space and environmental conditions, including power supply, at the Customer Sites as necessary for the installation, operation and maintenance of the Savvis Equipment and Service; (c) that, without the prior consent of Savvis, it shall not, and shall not permit others to, move, configure, tamper with, modify, restrict access to, or attempt to repair the Services, Savvis Equipment or network or interfere with the maintenance thereof; (d) that it bears the entire risk of loss, theft, destruction, or damage to the Savvis Equipment at Customer Sites, not' otherwise caused by the negligent acts of Savvis.

Local Access

If local access is ordered in connection with the Service, Savvis will order and administer such local access on Customer's behalf from the local access provider of Savvis' choice. Savvis reserves the right to

change the local access provider in its sole and reasonable discretion Savvis will provide as much prior written notice to Customer as reasonably practicable give the circumstances.. If Customer acquires its own local access for use with the Service, Customer is solely responsible for coordination of all such local access and for any costs (including early termination fees) associated with such local access.

Local access will extend to the termination point of the local loop at the applicable Service Address ("Termination Point") but will not include customer provided equipment ("CPE"), Extended Wiring, inside wiring, or other equipment not maintained by Savvis at a Service Address. Any additional provisions required to connect the Termination Point to the Demarcation Point are the sole responsibility of Customer.

Customer is responsible for ariy Construction Charges and Extended Wiring Charges, as defined below and as set forth in a Service Order or SOW.

Definitions

"Construction Charges" means costs and other expenses that Savvis may incur in constructing facilities to extend Service to a Demarcation Point not covered by Extended Wiring, or other activities that may cause Savvis to incur expenses in connection with provisioning the Service (e.g., special arrangements of LEC facilities or equipment required to activate the Service).

"Demarcation Point" means the physical interface between    the Savvis Service and Customer's telecommunications equipment.

"Extended Wiring" means additional wiring required to be installed at a Service Address where Customer requests a Demarcation Point beyond the existing Termination Point of the local loop at the Service Address.

"Extended Wiring Charges" means costs and other expenses that Savvis may incur in connection with Extended Wiring.

"Service Address" means the building where Customer receives the Service.

SERVICE TYPE #4: PROFESSIONAL SERVICES

Professional Services purchased hereunder shall be more specifically identified in one or more Statements of Work ("SOW") executed by Customer and Savvis, each of which is incorporated herein by reference.

Monthly recurring charges for a Service will be billed in advance of the provision of Services. One-time charges, such as installation fees, time and materials fees, or travel expenses, as set forth in the applicable Service Order or SOW, will be billed in arrears. For avoidance of doubt, an exact amount for certain expenses such as travel expenses may not be available at the time that the SOW or Service Order is signed.

The termination of any Professional Service will not affect    Customer's obligations to pay for other Services. If Customer terminates all or part of a SOW prior to its BCD, Customer agrees to pay a cancellation fee of 25% of the affected fees set forth in the SOW plus those non-refundable out-of-pocket costs incurred by Savvis.

"Customer Technology" means the proprietary technology of Customer and its licensors, including Customer's Internet operations design, software tools, hardware designs, algorithms, software (in source and object forms), user interface designs, architecture, class libraries, objects and documentation (both printed and

electronic), know-how, trade secrets and any related intellectual property rights throughout the world and alsb including any derivatives, improvements, enhancements or extensions of Customer Technology conceived, reduced to practice, or developed by or for Customer during the term of a SOW. "Savvis Technology" means the proprietary technology of Savvis and its licensors, including services, software tools, hardware designs, algorithms[ software (in source and object forms), user interface designs, architecture, class libraries, report formats, objects and documentation (both printed and electronic), network designs, know-how, trade secrets and any related intellectual property rights throughout the wodd and also including any derivatives, improvements, enhancements or extensions of Savvis Technology conceived, reduced to practice, or developed by or for Savvis during the term of a SOW.

Except for the rights expressly granted in this Service Schedule, nothing herein or in ariy SOW shall transfer to Customer any Savvis Technology, or to Savvis any Customer Technology (collectively, "Technology"), and all right, title and interest in and to a party's Technology will remain solely with that party, its

respective affiliates and their respective licensors. Notwithstanding anything to the contrary herein, neither party will be prohibited or enjoined at any time by the other party from utilizing any skills or knowledge acquired during the course of the Agreement, including, without limitation, information publicly known or available or that could reasonably be acquired in similar work performed for another customer of that party.

Subject to payment of all undisputed fees for a Deliverable (as defined in the applicable SOW), Savvis: (a) hereby assigns to Customer all right, title and interest Savvis may possess, including all intellectual property rights and moral rights, in such Deliverable provided by Savvis to Customer pursuant to the applicable SOW, excluding any Savvis Technology; and (b) · grants to Customer a non­ exclusive, non-transferable, royalty free license to use the Savvis Tech·nology incorporated into the Deliverable solely and exclusively as incorporated into and made part of the Deliverable as a whole. To the extent Customer, its employees or contractors participate in the creation of Savvis Technology, Customer, on behalf of itself, its employees and contractors, hereby assigns to Savvis all right, title and interest, including all intellectual property rights and moral rights, in and to such creation. Customer will obtain assignments from its employees and contractors as necessary to comply with this Section. Customer acknowledges that Savvis grants no other rights of license (including implied licenses or the right to sub-license) other than the express rights granted herein.

SERVICE TYPE #5: VIRTUAL PRIVATE DATA CENTER ("VPDC") SERVICES

The Parties agree that solely with respect to the VPDC Services (hereafter "VPDC Services") the following terms shall supplement the terms set forth elsewhere in the Agreement (including this Schedule) and in the event of a direct conflict with such terms, these VPDC terms shall govern with respect to the VPDC Services.

Service Order. "Service Order" means either: a service order request submitted on a form issued by Savvis and signed by Customer or the online order that Customer submits to Savvis via the SavvisStation

. portal that includes the type and details of the specific

VPDC Services ordered by Customer.

Portal. Customer may access the VPDC Services via the online SavvisStation portal or via a Savvis­ provided Application Programming Interface ("API"). Savvis may modify its portal or APis at any time, or may transition to new API's. Customer's use of the

portal and any API Customer downloads from a Savvis website are governed by this Agreement or any license terms that may be included with the download.

Term. Unless otherwise agreed by the parties, individual VPDC Services will not have designated term periods. The VPDC Service is not subject to pre­ installation cancellation fees.

Termination. Customer may terminate any individual Service Order that is not subject to a minimum term commitment for any reason or no reason at all without liability for early termination charges. Customer must follow Savvis' termination procedures made available in the SavvisStation portal when terminating a VPDC

·Service. Savvis may modify a VPDC Service on ninety

(90) days prior written notice to Customer.

Charges. For VPDC Services not subject to a Service Term commitment or VPDC Services that have automatically renewed following expiration of an initial Service Term, Savvis may increase the applicable charges at any time on prior written notice, including posting to the SavvisStation portal. ·

Security. Given that Customer can self-provision and self-configure the VPDC Services and the Customer environment in ways that may reduce their security, notwithstanding anything else to the contrary in the Agreement, Customer acknowledges that it and not Savvis will be responsible for whether the VPDC Services and Customer environment are configured in a secure manner.

Authorization. Customer agrees that: (i) it will provide accurate and complete information as requested by Savvis in connection with its registration for the VPDC Services; and (ii) any registrants, users, or others placing orders for VPDC Service on its behalf have full legal capacity to do so and are duly authorized to do so and to legally bind Customer to the Agreement and all transactions conducted under Customer's account.

Third    Party Software. Customer represents and warrants that it will not use, and will not authorize any third party to .use, any software with the VPDC Services, including without limitation the Savvis APis, in any manner that may require, pursuant to any applicable license, that any Savvis VPDC Services, components thereof, or other intellectual property of Savvis or its licensors be (a) disclosed or distributed in source code form, (b) made available free of charge to recipients, or (c) modifiable without restriction by recipients. Additionally, Customer agrees to comply with the terms of any applicable third party software license used in connection with the VPDC Service to

the extent such terms are made available to Customer in writing by Savvis.

Marketing. Nothwithstanding anything to the contrary elsewhere in the Agreement, Savvis does not have the right to use Customer's name, trademarks, or other proprietary identifying symbol in any medium for its marketing and publicity activities or otherwise without the prior written consent of Customer, in its sole discretion.

SLA Attachment. The SLA Attachment, as defined in the Agreement, applicable to the VPDC Service is available at www.savvis.com.

The undersigned parties have read and agree to the terms set forth in this Service Schedule and the applicable SSGs and SLA Attachments.

SAVVIS Communications Canada, Inc.

Name: /s/ James Parker

Title:

Date: 4/30/2013

The Ultimate Software Group of Canada, Inc.

Name: /s/ Robert Manne

Title: Vice President

Date: 3/28/2013

EX-10.3

EXHIBIT 10.3

Company Name: -Ultimate Software

SLA: SLA-HOS1330892

SAVVIS

SAVVIS SERVICE LEVEL A.TTACHMENT­

Colocation Services Service Level Agreement ("SLA")

This Colocation Services Service Level Attachment ("SLA" or "SLA Attachment") sets forth the applicable service levels ("Service Levels") for the Colocation Services and the HAN Internet Access Service ("Internet Connectivity Service", together with Colocation Services referred to collectively as "Services") provided to Customer within a Savvis Facility. This SLA Attachment is subject to and incorporated into the Savvis Master Service Agreement or Centurylink Agreement, including the Savvis Service Schedule - Colocation Service between the parties and any terms not defined in this SLA Attachment shall have the meaning set forth therein.

1. Service Levels and Service Credits

The Services are provided with the following categories of Service Levels:

A. Power Availability

B. Temperature and Humidity

C. Internet Connectivity Availability

D. Internet Connectivity Latency

E. Internet Connectivity Packet Delivery

In the event of a Service Level Failure (hereinafter defined), Customer may be entitled to receive the applicable service credit set forth herein ("Service Credits"). Eligibility for Service Credits related to Power Availability and Internet Connectivity Availability is dependent upon the Customer's selection of the Power Source Connection and Savvis Internet Connectivity Source Connection listed below:

Power Source	Savvis Internet	Services eligible for a Power Availability or Internet Connectivity
Connection	Connectivity Source	Service Credit (Service Credit based on
	Connection	the Monthly Recurring Charge ("MRC")
		for the Affected Service)
Primary and	Primary and Redundant
Redundant	(Requirement: fifty
	percent (50%) of	Colocation Service and Internet
	Customer's Internet	Connectivity Service
	bandwidth in each specific
	Savvis Facility must be
	purchased from Savvis or
	Centurvlink)
Primary and		Colocation Service (space and power
Redundant	Primary only or none	component) only
Primary Only	Primary and Redundant	Internet Connectivity Service only
Primary Only	Primary only or none	None

A. POWER AVAILABILITY

The Colocation Service is provided with the Power Availability Service Level set forth below:

Power Availability    I 100%     

In order to be eligible for Power Availability Service Level, Customer (i) shall maintain and utilize primary and redundant power sources and equipment capable of operating at 100% of load, without sustaining an outage solely caused by power being lost to just one of the two power sources, (ii) shall use cabling that meets national electrical and fire stahdards and any specification required by Savvis, (iii) shall connect its Equipment directly into both the A power source and the B power source, (iv) shall not permit power utilization to exceed the power rating identified ih the Service Order, unless provided otherwise in the Service Schedule or the Service Order, and (v) shall maintain all Customer Equipment in compliance with the electrical regulations of the region where such Customer Equipment is installed.

If the Colocation Service is subject to a Power Outage, a Power Availability Service Level Failure shall be deemed to occur and Customer is entitled to a Service Credit set forth in the table below. Service Credits for Power Outages are based on cumulative Power Outages over a calendar month. All Power Outage measurements will be based on Savvis' internal monitoring equipment and records.

Cumulative Duration of Power Outages within a Calendar Month	Service Credit for Power Outages based on a Percentage of MRC for the Affected Service of the Colocation Service
≥1minute and < 45 minutes	5%
≥45 minutes and < 3 hours 37 minutes	10%
≥3 hours 37 minutes and < 7 hours 12 minutes	20%
≥than 7 hours 12 minutes	30%

B. TEMPERATURE AND HUMIDITY

The Colocation Service is provided with the following Temperature and Humidity Service Levels in accordance with the terms of this SLA.

Savvis Data Center (SOC) Environment	Service Level
SDC Temperature	Within the allowable ASHRAE range of 5gof to go°F.
SDC Non-Condensing Humidity Range	Within the allowable ASHRAE range of 20% relative humidity to 80% relative humidity or a 62°F dew point.

A "Temperature Service Level Failure" shall occur as a result of the SDC temperature falling below 5go Fahrenheit or exceeding to goo Fahrenheit, as allowed range under ASHRAE, for at least one hundred-twenty (120) consecutive minutes in either case for reasons other than an Excluded Event. In the event that a Termperature Service Level Failure occurs two or more times during any calendar month then subject to the terms of this SLA, Customer will be entitled to a Service Credit in a amount equal to 1/3oth of the MRC for the Affected Services of the Colocation Service paid by Customer in the month that the Temperature Service Level Failure occurred.

A "Humidity Service Level Failure" shall occur as a result of the SDC humidity falling below 20% relative humidity or exceeding 80% relative humidity or 62° Fahrenheit dew point, as allowed range under ASHRAE, for at least one hundred-twenty (120) consecutive minutes in

either case for reasons other than an Excluded Event. In the event that a Humidity Service Level Failure occurs two or more times during any calendar month then subject to the terms of this SLA, Customer will be entitled to a Service Credit in an amount equal to 1/30th of the MRC for the Affected Services of the Colocation Service paid by Customer in the month that the Humidity Service Level Failure occurred.

C. INTERNET CONNECTIVITY AVAILABILITY

The Internet Connectivity Service is provided with the Availability Service Level set forth below.

Availability    99.99%

If the Internet Connectivity Service is subject to a Network Outage, an Internet Connectivity Availability Service Level Failure shall be deemed to occur and Customer is entitled to a Service Credit set forth in the table below. Service Credits for Network Outages are based on cumulative Network Outages over a calendar month.

Cumulative Duration of Network Outages within a Calendar Month	Service Credits for Network Outages based on a Percentage of MRC for the Affected Service of the Internet Connectivity Service
≥5 minutes and < 60 minutes	5%
≥60 minutes and < 3 hours	15%
≥3 hours and < 6 hours	35%
≥6 hours	50%

D. INTERNET CONNECTIVITY LATENCY

The Internet Connectivity Service is provided with the Internet Connectivity Latency Service Levels measured within the Savvis Core Network as set forth below. Failure to meet Latency Service Levels is not considered a Network Outage.

Global Average Monthly Internet Connectivity Latency Service Level (Metrics are calculated: Roundtrip in milliseconds (ms))

Reaion	NA-E
NA-E	50	NA-C
NA-C	65	50	NA-W
NA-W	100	65	50	E-E
E-E	110	150	200	35	E-W
E-W	115	200	210	40	35	AP-N1
AP-Nl	210	200	200	350	300	65	AP-N2 I

Company Name: -Ultimate Software

SLA: SLA-HOS1330892

AP-N2	285	255	215	375	385	65	55	AP-S
AP-S	260	270	230	400	400	100	45	50	AP-A
AP-A	330	300	260	410	400	150	170	140	80

Average Monthly Transatlantic Internet Connectivity Latency Service Level (Metrics are calculated: Roundtrip in milliseconds (ms))

Transatlantic Route	Latency
NY- London	95 ms
D.C. - Frankfurt	100 ms

If the actual monthly average Latency exceeds the applicable maximum Latency Service Levels, set forth in the Internet Connectivity Latency Service Level tables above in a given calendar month, a Internet Connectivity Latency Service Level Failure shall be deemed to occur and Customer is entitled to a Service Credit equal to 2.5% of the MRC for the Affected Service of the Internet Connectivity Service.

E. INTERNET CONNECTIVITY PACKET DELIVERY

The Internet Connectivity Service is provided with the Packet Delivery Service Level set forth below. Failure to meet a Packet Delivery Service Level is not considered a Network Outage.

Packet Delivery    99.5%

If the actual monthly Packet Delivery is less than the Packet Delivery Service Level set forth above, a Packet Delivery Service Level Failure shall be deemed to occur and Customer is entitled to a Service Credit in the amount of 2.5% of the MRC for the Affected Service of the Internet Connectivity Service.

2. Example of Service Credit Calculations

Service Credits are based on cumulative Power Outages, Savvis Network Outages, Temperature Service Level Failures, and/or Humidity Service Level Failures over a calendar month.

Example 1: Customer has ten (10) racks each with a primary and redundant power circuit. The racks are connected to the internet via either a) an alternative carrier serving the Savvis Data Center or b) through Savvis via a primary Network connection only (there is no redundant Network connection). If both the primary and redundant power circuits of two racks incur a Power Outage, the Service Credit is calculated as a percentage applied to the MRCs for the eligible Affected Services, which would be the monthly charges for the two (2) racks only as the Network Services are not considered an "Affected Service".

Example 2: Customer has ten (10) racks each with a primary and redundant power circuit. The racks are connected to the internet via Savvis multiline access circuits (primary and redundant Internet Connectivity Service). If both the primary and redundant power circuits of two racks incur a Power Outage, the Service Credit is calculated as a percentage applied to the

MRCs for the Affected Services, which would be the monthly charges for the two (2) racks and twenty percent (20%) of the MRCs for Internet Connectivity Service (i.e., the Internet Connectivity Service MRCs apportioned to two (2) of ten (10) racks).

Example 3: Customer has ten (10) racks each with a primary and redundant power circuit. The racks are connected to the internet via Internet Connectivity Service using both primary and redundant access circuits. If both the primary and redundant access circuits incur a Network Outage, the Service Credit is calculated against the MRCs for the Affected Services, which would be the monthly charges for the ten (10) racks and one-hundred percent (100%) of the Internet Connectivity Service MRCs.

3. Maintenance

Current scheduled maintenance windows are described in the Savvis Customer Guide and Handbook ("Scheduled Maintenance"). Savvis has the right to perform Scheduled Maintenance or Emergency Maintenance, which may limit or suspend the Availability .of the Services. The suspension of the Availability of any of the Services during Scheduled or Emergency Maintenance shall not be deemed a Service Level Failure (e.g., Network Outage, Power Outage, Temperature Service Level Failure, or Humidity Service Level Failure) and Customer shall not be entitled to any Service Credit. Savvis shall provide Customer with at least ten (10) days prior written notice of any Scheduled Maintenance activities via the SavvisStation customer portal. Emergency Maintenance may not be posted because of its immediate nature.

Customer shall be entitled to defer any Scheduled Maintenance on Savvis Services that only affects Customer; provided, however, Customer shall not be entitled to any Service Credits as set forth above to the extent that Savvis' failure to satisfy any of its obligations under this SLA Attachment is due to Savvis' inability to conduct Scheduled Maintenance as originally scheduled and as measured from such date that the Scheduled Maintenance would have ordinarily occurred. The parties shall work together in good faith to determine a new mutually agreed upon Scheduled Maintenance date and time. Customer shall not be entitled to defer Emergency Maintenance.

4. Process

Customer must request any Service Credit due hereunder by submitting an e-mail to billing@savvis.comwithin sixty (60) calendar days of the conclusion of the month in which the Service Level Failure(s) occurs. Customer waives any right to Service Credits not requested within this sixty (60) calendar day period. Service Credits will be issued once validated by Savvis and applied toward the invoice which Customer receives no later than two (2) months following Customer's Service Credit request. All performance calculations and applicable Service Credits are based on Savvis records and data unless Customer can provide Savvis with clear and convincing evidence to the contrary within such sixty (60) calendar day period.

5. Limitations

Customer will not be eligible to accrue any otherwise applicable Service Credits if Customer is in breach or default under any provisions of the Agreement at the time the Service Level Failure occurred and will not be entitled to any otherwise available Service Credit if Customer is in breach or default under any provisions of the Agreement at the time such Service Credit is requested by Customer until such breach is cured.

Company Name: -Ultimate Software

SLA: SLA-HOS1330892

In no event will the total Service Credits accrued in any single month exceed, in the aggregate across all Service Levels and events, fifty percent (50%) of the invoiced amount for the Affected Service.

This SLA provides Customer's sole and exclusive remedies for any Service interruptions, deficiencies, or failures of any kind. To clarify, such sole and exclusive remedies shall not apply to breaches of unrelated obligations under the Agreement such as infringement, confidentiality, etc. Service Levels and Service Credits set forth in this SLA Attachment shall not apply with respect to any Excluded Events. "Excluded Event" means any event that adversely impacts the Service that is caused by (a) the acts or omissions of Customer, its employees, customers, contractors or agents; (b) the failure or malfunction of equipment, applications or systems not owned or controlled by Savvis; (c) Force Majeure events; (d) Scheduled or Emergency Maintenance; (e) any suspension of Service pursuant to the Agreement; (f) the unavailability of required Customer personnel, including as a result of failure to provide Savvis with accurate, current contact information; or (g) any other circumstance specified in the applicable SSG.

Notwithstanding anything contained herein or in the Savvis Master Service Agreement to the contrary, the following provisions shall apply to the Services:

Customer may terminate the· Affected Service(s), if Customer experiences: (a) a single Power Outage or Network Outage greater than seven (7) hours, twelve (12) minutes in any given month; or (b) two (2) or more Power Outages or Network Outages, each lasting more than one hour, within a six (6) month period (each experience under section (a) or (b) is defined as a "Chronic Service Termination Event").

If a Chronic Service Termination Event occurs and Customer desires to terminate, Customer shall provide Savvis with written notification detailing the performance deficiency(ies) giving rise to the Chronic Service Termination Event, which notice must be sent within thirty (30) days following the Chronic Service Termination Event. For avoidance of doubt, if the Affected Service(s) are the only Services the Customer is purchasing from Savvis, then the entire Agreement may be terminated.. Termination shall be effective as specified in the Customer's termination notice, but in no event later than one hundred twenty (120) days from Savvis' receipt of Customer's notice termination. Such termination shall be without any further obligation to Savvis, including no obligation for early termination fees or other charges, other than the payment of all amounts due and owing to Savvis through the date of such termination. If Customer fails to provide Savvis with timely notification as set forth herein, Customer will be deemed to have waived its right to terminate as a result of that particular Chronic Service Termination Event. Failure to provide such notification shall in no way operate to waive or otherwise affect any of Customer's other rights related to any other Chronic Service Termination Event. This termination right, plus any corresponding credits, shall be Customer's sole and exclusive remedies for any deficiencies and interruptions of Service, including the failure of Savvis to meet the SLA goals.

6. Definitions

"Affected Service" means the portion of Services directly impacted by the failure to meet the relevant Service Level described in this SLA Attachment. For avoidance of doubt, if the Customer has a primary and redundant power source connection and a primary and redundant Savvis Internet Connectivity Service connection and either a Network Outage occurs and/or a

Power Outage occurs, then the Affected Services includes both the Colocation and the Savvis Internet Connectivity Services.

"Availability" means the percentage of time during a month in which the Colocation Services or Savvis Internet Connectivity is not subject to an outage.

Availability is calculated as follows:

"Availability" = ((Total minutes in a calendar month) - (Total minutes of outages during a calendar month)) x 1oo

(Total minutes in a calendar month)    )

"Customer Area" means the specific portion of a Savvis Facility in which the Colocation Service is provided to Customer.

"Emergency Maintenance" means unscheduled maintenance to the Services which must be performed on an immediate basis where failure to do so is likely to result in an imminent and/or material Service deficiency.

"Facility" means Savvis Data Center building, or location in which the Customer Area is located.

"Intra-Metro" - means point-to-point connectivity over Savvis-owned, metropolitan Ethernet facilities within the same metropolitan area.

"Latency" means the monthly average time it takes for a 64 byte IP test packet (except where a 1500 byte test packet is noted) to travel round trip across the relevant portion of the Savvis Network, calculated as:

Monthly Core Latency = Sum of daily average Latency calculations for a given month/Total number of days in month

"Network Outage" means any period of at least one minute during which the Savvis Internet Connectivity Service is unable to transmit or receive data for reasons other than any Excluded Event.    A Network Outage begins when Customer reports such Service failure or Savvis is otherwise aware of such failure and ends at the restoration of the Affected Service. All Network Outage measurements will be rounded to the nearest one minute increment.

"Packet Delivery" means the monthly average percentage of packets that are successfully delivered over the relevant portion of the Savvis Internet Connectivity Service, expressed as a percentage to two (2) decimal places, calculated as:

Packet Loss= Total number of packets successfully delivered in a given month x 100Total number of packets scheduled to be delivered in a given month

"Power Outage" means any period of at least one minute during which Customer is unable to utilize the Colocation Service due to Savvis' failure to provide Customer with the specified power in the· Customer Area for reasons other than an Excluded Event. All Power Outage measurements will be rounded to the nearest one minute increment.

"Regions" mean the areas described and abbreviated below: North America: Canada & USA

North America - East (NA-E):    USA & Canada, Eastern Standard Time

North America - Central (NA-C): USA & Canada, Ceritral Standard Time

North America - West (NA-W):    USA & Canada, Mountain & Pacific Standard Time

Europe: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Spain, Sweden, Switzerland and UK

Europe - East (EE):    Hungary, Poland

Europe - West (EW):    Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Spain, Sweden, Switzerland and UK

Asia/Pacific Rim: Austrailia, Hong Kong, Japan, Korea, Malaysia, New Zealand, Taiwan and Singapore

Asia/Pac Rim - North 1 (AP-N1): Japan and Korea

Asia/Pac Rim - North 2 (AP-N2): Hong Kong and Taiwan

Asia/Pac Rim - South (AP-S): Malaysia and Singapore

Asia/Pac Rim - Australia (AP-A): Australia, New Zealand

"Savvis Core Network" means the Savvis owned and operated IP backbone infrastructure (AS3561) between the routers, switches, and cabling located in Savvis Points of Presence and Internet Data Centers. For the avoidance of doubt, the Savvis Core Network does not include, among other things, access facilities, backhaul facilities or Customer Equipment.

"Service Credit" means an amount deducted from fees billed to Customer in the event of a Service Level Failure.

"Service Level Failure" means Power Outage, Network Outage, Temperature Service Level Failure, or Humidity Service Level Failure.

SAVVIS Communications Canada, Inc.

Name: /s/ James Parker

Title:

Date: 4/30/2103

The Ultimate Software Group of Canada, Inc.

Name: /s/ Robert Manne

Title: Vice President

Date: 3/28/2013

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Scott Scherr, certify that:

1. I have reviewed this Form 10-Q of The Ultimate Software Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 8, 2013

/s/  Scott Scherr

Scott Scherr

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Mitchell K. Dauerman, certify that:

1. I have reviewed this Form 10-Q of The Ultimate Software Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 8, 2013

/s/  Mitchell K. Dauerman

Mitchell K. Dauerman

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott Scherr, Chief Executive Officer of The Ultimate Software Group, Inc., hereby certify to the best of my knowledge and belief that this Quarterly Report on Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that the information contained in this Quarterly Report on Form 10-Q fairly represents, in all material respects, the financial condition and results of operations of The Ultimate Software Group, Inc.

/s/ Scott Scherr

Scott Scherr

Chief Executive Officer

August 8, 2013

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mitchell K. Dauerman, Chief Financial Officer of The Ultimate Software Group, Inc., hereby certify to the best of my knowledge and belief that this Quarterly Report on Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that the information contained in this Quarterly Report on Form 10-Q fairly represents, in all material respects, the financial condition and results of operations of The Ultimate Software Group, Inc.

/s/ Mitchell K. Dauerman

Mitchell K. Dauerman

Chief Financial Officer

August 8, 2013

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Stock-Based Compensation

Summary of Plans

Our Amended and Restated 2005 Equity and Incentive Plan (the “Plan”) authorizes the grant of options (“Options”) to non-employee directors, officers and employees of Ultimate to purchase shares of Ultimate’s Common Stock ("Common Stock").  The Plan also authorizes the grant to such persons of restricted and non-restricted shares of Common Stock, stock appreciation rights, stock units and cash performance awards (collectively, together with the Options, the “Awards”).

As of June 30, 2013, the aggregate number of shares of Common Stock that were available to be issued under all Awards granted under the Plan was 1,634,154 shares.

The following table sets forth the non-cash stock-based compensation expense resulting from stock-based arrangements that was recorded in our unaudited condensed consolidated statements of income for the periods indicated (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
Non-cash stock-based compensation expense:
Cost of recurring revenues	$	973	$	638	$	1,837	$	1,151
Cost of services revenues	864		665		1,824		1,166
Sales and marketing	3,185		1,772		6,281		3,446
Research and development	816		692		1,586		1,316
General and administrative	1,940		1,096		3,847		2,138
Total non-cash stock-based compensation expense	$	7,778	$	4,863	$	15,375	$	9,217

Net cash proceeds from the exercise of stock options were $2.8 million and $5.7 million for the three and six months ended June 30, 2013, respectively, and $2.5 million and $5.3 million for the three and six months ended June 30, 2012. There was a $4.3 million and a $8.6 million income tax benefit recognized in additional paid-in capital from the realization of excess stock-based payment deductions during the three and six months ended June 30, 2013, respectively, and a $2.4 million and $3.3 million income tax benefit recognized in additional paid-in capital from the realization of excess stock-based payment deductions during the three and six months ended June 30, 2012, respectively.

Stock Option, Restricted Stock and Restricted Stock Unit Activity

There were no stock options granted during the three and six months ended June 30, 2013.  The following table summarizes stock option activity (for previously granted stock options) for the six months ended June 30, 2013 (in thousands, except per share amounts): 

Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2012	1,473		$	22.83	3.80	$	105,447
Granted	—		$	—	—	—
Exercised	(319	)	$	17.89	—	—
Forfeited or expired	—		$	—	—	—
Outstanding at June 30, 2013	1,154		$	24.20	3.60	$	107,458
Exercisable at June 30, 2013	1,154		$	24.20	3.60	$	107,458

The aggregate intrinsic value of stock options in the table above represents total pretax intrinsic value (i.e., the difference between the closing price of Ultimate’s Common Stock on the last trading day of the reporting period and the exercise price times the number of shares) that would have been received by the option holders had all option holders exercised their options on June 30, 2013.  The amount of the aggregate intrinsic value changes, based on the fair value of Ultimate’s Common Stock.  Total intrinsic value of options exercised was $14.4 million and $27.4 million for the three and six months ended June 30, 2013, respectively, and $11.7 million and $21.7 million for the three and six months ended June 30, 2012, respectively. All previously granted stock options were fully vested as of December 31, 2011 and, therefore, no options vested during the three and six months ended June 30, 2013 and June 30, 2012, respectively.  

As of June 30, 2013, there were no unrecognized compensation costs related to non-vested stock options expected to be recognized as all previously granted stock options were fully vested as of December 31, 2011.

During the three months ended June 30, 2013 and June 30, 2012, we granted restricted stock awards for 5,251 shares and 5,501 shares of Common Stock, respectively, to non-employee directors. There were 11,100 and 15,317 restricted stock unit awards granted to employees during the three months ended June 30, 2013 and June 30, 2012, respectively.

During the three months ended June 30, 2013, 9,580 shares of Common Stock previously issued under restricted stock awards vested and were released to non-employee directors.  During the three months ended June 30, 2012, 1,920 shares of Common Stock previously issued under restricted stock awards vested and were released to non-employee directors.  During the three months ended June 30, 2013, there were no shares of Common Stock previously issued under restricted stock awards that vested. During the three months ended June 30, 2012, 16,187 shares of Common Stock previously issued under restricted stock awards vested and were released to officers and employees. For the three months ended June 30, 2012, to satisfy employee withholding tax requirements applicable to payment of such awards in the amount of $0.4 million, 5,625 of these shares were acquired by Ultimate, while 10,562 of such shares were released to the holders of such awards.

During the three months ended June 30, 2013, 14,035 shares of Common Stock became payable to officers and employees under restricted stock unit awards that vested and were released during such period.  4,856 of these shares were retained by Ultimate and not issued, in satisfaction of withholding tax requirements applicable to payment of such awards in the amount of $0.5 million, while 9,179 of such shares were issued to the holders of such awards.  During the three months ended June 30, 2012, 12,604 shares became payable to officers and employees under restricted stock unit awards that vested and were released during such period.  4,153 of these shares were retained by Ultimate and not issued, in satisfaction of withholding tax requirements applicable to payment of such awards in the amount of $0.3 million, while 8,451 of such shares were issued to the holders of such awards.

The following table summarizes restricted stock award and restricted stock unit activity for the six months ended June 30, 2013 (in thousands, except per share amounts): 

	Restricted Stock Awards				Restricted Stock Unit Awards
	Shares		Weighted Average Grant Date Fair Value		Shares
Outstanding at December 31, 2012	998		$	64.81	509
Granted	12		$	102.06	193
Vested and Released	(37	)	$	28.50	(180	)
Forfeited or expired	(31	)	$	77.92	(13	)
Outstanding at June 30, 2013	942		$	66.28	509

As of June 30, 2013, $41.9 million of total unrecognized compensation costs related to non-vested restricted stock awards were expected to be recognized over a weighted average period of 2.2 years.  As of June 30, 2013, $30.6 million of total unrecognized compensation costs related to non-vested restricted stock unit awards were expected to be recognized over a weighted average period of 1.9 years.

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenues:
Recurring	$ 80,754	$ 64,636	$ 158,836	$ 125,509
Services	16,392	14,010	35,837	31,034
License	323	531	713	915
Total revenues	97,469	79,177	195,386	157,458
Cost of revenues:
Recurring	22,543	19,235	44,371	38,339
Services	18,030	14,843	37,758	31,366
License	73	120	163	208
Total cost of revenues	40,646	34,198	82,292	69,913
Gross profit	56,823	44,979	113,094	87,545
Operating expenses:
Selling and marketing	22,672	17,472	45,582	36,109
Research and development	16,864	15,989	32,994	31,685
General and administrative	8,285	6,126	17,212	12,271
Total operating expenses	47,821	39,587	95,788	80,065
Operating income	9,002	5,392	17,306	7,480
Other (expense) income:
Interest and other expense	(56)	(101)	(136)	(176)
Other income, net	6	30	47	43
Total other expense, net	(50)	(71)	(89)	(133)
Income before income taxes	8,952	5,321	17,217	7,347
Provision for income taxes	(4,050)	(2,668)	(7,795)	(3,670)
Net income	$ 4,902	$ 2,653	$ 9,422	$ 3,677
Net income per share:
Basic	$ 0.18	$ 0.10	$ 0.34	$ 0.14
Diluted	$ 0.17	$ 0.09	$ 0.33	$ 0.13
Weighted average shares outstanding:
Basic	27,735	26,655	27,606	26,524
Diluted	28,875	28,281	28,812	28,194

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Summary of Significant Accounting Policies and Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Summary of Significant Accounting Policies

Ultimate’s significant accounting policies discussed in Note 3 to its audited consolidated financial statements for the fiscal year ended December 31, 2012, included in the Form 10-K, have not significantly changed.

Fair Value of Financial Instruments

Ultimate's consolidated financial instruments, consisting of cash and cash equivalents, investments in marketable securities, funds held for customers and the related obligations, accounts receivable, accounts payable, capital lease obligations and other borrowings, approximated fair value as of June 30, 2013 and December 31, 2012.

Recently Issued and Adopted Accounting Standards

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, “Income Taxes - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). The issuance of ASU 2013-11 generally requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward ("NOLC"), a similar tax loss, or a tax credit carryforward. To the extent a NOLC, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The effective date of ASU 2013-11 is for fiscal years, and interim periods within those years, beginning after December 15, 2013. We do not expect the adoption of ASU 2013-11 to have a material impact on our unaudited condensed consolidated financial statements.

On January 1, 2013, we adopted FASB ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). ASU 2013-02 was issued to address concerns raised in the issuance of ASU 2011-05, "Presentation of Comprehensive Income" ("ASU 2011-05"). As a result of the issuance of ASU 2013-02, entities are now required to disclose (i) for items reclassified out of accumulated other comprehensive income ("AOCI") and into net income in their entirety, the effect of the reclassification on each affected net income line item; and (ii) for AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required GAAP disclosures. The adoption of ASU 2013-02 did not have a material impact on our unaudited condensed consolidated financial statements.

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Nature of Operations (Details)	Jun. 30, 2013 employee suite
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of solution suites marketed	2
UltiPro Enterprise solution suite, company size, minimum number of employees	1,000
UltiPro Workplace solution suite, company size, maximum number of employees	1,000

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Investments in Marketable Securities and Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Investments in Marketable Securities and Fair Value of Financial Instruments [Abstract]

Amortized cost, net unrealized gain and fair value of investments in marketable available-for-sale securities

The amortized cost, net unrealized gain (loss) and fair value of our investments in marketable available-for-sale securities as of June 30, 2013 and December 31, 2012 are shown below (in thousands):

	As of June 30, 2013							As of December 31, 2012
	Amortized Cost		Net Unrealized (Loss) Gain			Fair Value		Amortized Cost		Net Unrealized Gain		Fair Value
Corporate debentures and bonds	$	6,548	$	(1	)	$	6,547	$	5,373	$	1	$	5,374
Commercial paper	1,548		—			1,548		2,448		—		2,448
U.S. Agency bonds	1,272		(1		)	1,271		1,000		—		1,000
U.S. Treasury bills	—		—			—		1,201		—		1,201
Certificates of deposit	515		—			515		511		—		511
Total investments	$	9,883	$	(2	)	$	9,881	$	10,533	$	1	$	10,534

Amortized costs and fair value of marketable available-for-sale securities by contractual maturity

The amortized cost and fair value of the marketable available-for-sale securities by contractual maturity as of June 30, 2013 are shown below (in thousands):

	June 30, 2013
	Amortized Cost		Fair Value
Due in one year or less	$	7,934	$	7,934
Due after one year	1,949		1,947
Total	$	9,883	$	9,881

Fair value of financial assets and liabilities, by level within the fair value hierarchy

The following table sets forth, by level within the fair value hierarchy, financial assets and liabilities accounted for at fair value as of June 30, 2013 and December 31, 2012 (in thousands):

	As of June 30, 2013								As of December 31, 2012
	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Corporate debentures and bonds	$	6,547	$	—	$	6,547	$	—	$	5,374	$	—	$	5,374	$	—
Commercial paper	1,548		—		1,548		—		2,448		—		2,448		—
U.S. Agency bonds	1,271		—		1,271		—		1,000		—		1,000		—
U.S. Treasury bills	—		—		—		—		1,201		—		1,201		—
Certificates of deposit	515		515		—		—		511		511		—		—
Total	$	9,881	$	515	$	9,366	$	—	$	10,534	$	511	$	10,023	$	—

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Property and Equipment (Details) (USD $)	3 Months Ended		6 Months Ended			6 Months Ended		12 Months Ended	6 Months Ended		12 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Jun. 30, 2013 Minimum [Member] Property and equipment [Member]	Jun. 30, 2013 Minimum [Member] Leasehold Improvements [Member]	Dec. 31, 2012 Minimum [Member] Internal Use Software [Member]	Jun. 30, 2013 Maximum [Member] Property and equipment [Member]	Jun. 30, 2013 Maximum [Member] Leasehold Improvements [Member]	Dec. 31, 2012 Maximum [Member] Internal Use Software [Member]
Capital Leased Assets [Line Items]
Capitalized Computer Software, Additions	$ 4,000,000	$ 0	$ 7,300,000	$ 0
Estimated useful life, minimum (in years)			5 years			2 years	3 years	3 years	20 years	15 years	5 years
Property and equipment	134,507,000		134,507,000		120,390,000
Less: accumulated depreciation and amortization	(87,823,000)		(87,823,000)		(82,322,000)
Property and equipment, net	$ 46,684,000		$ 46,684,000		$ 38,068,000

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Investments in Marketable Securities and Fair Value of Financial Instruments Investments in Marketable Securities and Fair Value of Financial Instruments (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Corporate debentures and bonds	$ 6,547	$ 5,374
Commercial paper	1,548	2,448
U.S. Agency bonds	1,271	1,000
U.S. Treasury bills	0	1,201
Certificates of deposit	515	511
Total	9,881	10,534
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Corporate debentures and bonds	0	0
Commercial paper	0	0
U.S. Agency bonds	0	0
U.S. Treasury bills	0	0
Certificates of deposit	515	511
Total	515	511
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Corporate debentures and bonds	6,547	5,374
Commercial paper	1,548	2,448
U.S. Agency bonds	1,271	1,000
U.S. Treasury bills	0	1,201
Certificates of deposit	0	0
Total	9,366	10,023
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Corporate debentures and bonds	0	0
Commercial paper	0	0
U.S. Agency bonds	0	0
U.S. Treasury bills	0	0
Certificates of deposit	0	0
Total	$ 0	$ 0

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Foreign Currency (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Foreign Currency [Abstract]
Cumulative unrealized translation gains	$ 0.5	$ 0.2	$ 0.8	$ 0.1
Unrealized translation gains(loss) included in accumulated other comprehensive income	$ 0.7	$ 0.1	$ 0.7	$ 0.1

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Investments in Marketable Securities and Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
Unrealized gains (losses) on available-for-sale securities	$ 2	$ 1
Amortized Cost	9,883	10,533
Net Unrealized Gain (Loss)	(2)	1
Fair Value	9,881	10,534
Amortized Cost Basis
Due in one year or less	7,934
Due after one year	1,949
Total	9,883
Fair Value
Due in one year or less	7,934
Due after one year	1,947
Total	9,881	10,534
Corporate debentures and bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	6,548	5,373
Net Unrealized Gain (Loss)	(1)	1
Fair Value	6,547	5,374
Commercial paper [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,548	2,448
Net Unrealized Gain (Loss)	0	0
Fair Value	1,548	2,448
U.S. Agency bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,272	1,000
Net Unrealized Gain (Loss)	(1)	0
Fair Value	1,271	1,000
U.S. Treasury bills [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	0	1,201
Net Unrealized Gain (Loss)	0	0
Fair Value	0	1,201
Certificates of Deposit [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	515	511
Net Unrealized Gain (Loss)	0	0
Fair Value	$ 515	$ 511

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Other Comprehensive Income (Loss), Tax, Portion Attributable to Parent	$ 1	$ 1	$ 0	$ 1

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Nature of Operations

6 Months Ended

Jun. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations

Nature of Operations

The Ultimate Software Group, Inc. and subsidiaries (“Ultimate,” “we,” “us” or “our”) is a leading provider of cloud-based human capital management (“HCM”). Ultimate's UltiPro software (“UltiPro”) is a comprehensive, easy-to-use solution delivered primarily over the Internet to organizations based in the United States and Canada, including those with global employees. UltiPro is designed to deliver the functionality businesses need to manage the complete employment life cycle from recruitment to retirement.   Ultimate's solutions are marketed as two solution suites based on company size.  UltiPro Enterprise (“Enterprise”) is designed to address the needs of companies with more than 1,000 employees.   UltiPro Workplace (“Workplace”) is designed for companies with 1,000 or fewer employees.  UltiPro is marketed primarily through our Enterprise and Workplace direct sales teams.

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Investments in Marketable Securities and Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2013

Investments in Marketable Securities and Fair Value of Financial Instruments [Abstract]

Investments in Marketable Securities and Fair Value of Financial Instruments

Investments in Marketable Securities and Fair Value of Financial Instruments

We classify our investments in marketable securities with readily determinable fair values as available-for-sale.  Available-for-sale securities consist of debt and equity securities not classified as trading securities or as securities to be held to maturity.  Unrealized gains and losses on available-for-sale securities are reported as a net amount in accumulated other comprehensive (loss) income in stockholders’ equity until realized.  Realized gains and losses resulting on available-for-sale securities are included in other (expense) income, net in the unaudited condensed consolidated statements of income. There were no significant reclassifications of realized gains and losses on available-for-sale securities to the unaudited condensed consolidated statements of income for the three and six months ended June 30, 2013 and June 30, 2012.

Gains and losses on the sale of available-for-sale securities are determined using the specific identification method.   Included in accumulated other comprehensive (loss) income was $2 thousand of unrealized loss and $1 thousand of unrealized gain, net of tax, on available-for-sale securities at June 30, 2013 and December 31, 2012, respectively.

The amortized cost, net unrealized gain (loss) and fair value of our investments in marketable available-for-sale securities as of June 30, 2013 and December 31, 2012 are shown below (in thousands):

	As of June 30, 2013							As of December 31, 2012
	Amortized Cost		Net Unrealized (Loss) Gain			Fair Value		Amortized Cost		Net Unrealized Gain		Fair Value
Corporate debentures and bonds	$	6,548	$	(1	)	$	6,547	$	5,373	$	1	$	5,374
Commercial paper	1,548		—			1,548		2,448		—		2,448
U.S. Agency bonds	1,272		(1		)	1,271		1,000		—		1,000
U.S. Treasury bills	—		—			—		1,201		—		1,201
Certificates of deposit	515		—			515		511		—		511
Total investments	$	9,883	$	(2	)	$	9,881	$	10,533	$	1	$	10,534

The amortized cost and fair value of the marketable available-for-sale securities by contractual maturity as of June 30, 2013 are shown below (in thousands):

	June 30, 2013
	Amortized Cost		Fair Value
Due in one year or less	$	7,934	$	7,934
Due after one year	1,949		1,947
Total	$	9,883	$	9,881

We classify and disclose fair value measurements in one of the following three categories of fair value hierarchy:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities.

Level 2 - Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Our assets that are measured by management at fair value on a recurring basis are generally classified within Level 1 or Level 2 of the fair value hierarchy.  The types of instruments valued based on quoted market prices in active markets include certificates of deposit.  Such instruments are generally classified within Level 1 of the fair value hierarchy.   We did not have any transfers into and out of Level 1 or Level 2 during the three and six months ended June 30, 2013 and the twelve months ended December 31, 2012.  No assets or investments were classified as Level 3 as of June 30, 2013 or as of December 31, 2012.

The types of instruments valued by management, based on quoted prices in less active markets, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, include Ultimate’s corporate debentures and bonds, commercial paper, U.S. agency bonds and U.S. Treasury bills.  Such instruments are generally classified within Level 2 of the fair value hierarchy.  Ultimate uses consensus pricing, which is based on multiple pricing sources, to value its fixed income investments. The following table sets forth, by level within the fair value hierarchy, financial assets and liabilities accounted for at fair value as of June 30, 2013 and December 31, 2012 (in thousands):

	As of June 30, 2013								As of December 31, 2012
	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Corporate debentures and bonds	$	6,547	$	—	$	6,547	$	—	$	5,374	$	—	$	5,374	$	—
Commercial paper	1,548		—		1,548		—		2,448		—		2,448		—
U.S. Agency bonds	1,271		—		1,271		—		1,000		—		1,000		—
U.S. Treasury bills	—		—		—		—		1,201		—		1,201		—
Certificates of deposit	515		515		—		—		511		511		—		—
Total	$	9,881	$	515	$	9,366	$	—	$	10,534	$	511	$	10,023	$	—

Assets and liabilities measured at fair value on a recurring basis were presented in the unaudited condensed consolidated balance sheet as of June 30, 2013 and the audited consolidated balance sheet as of December 31, 2012 as short-term and long-term investments in marketable securities.  There were no financial liabilities accounted for at fair value as of June 30, 2013 and December 31, 2012.

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Basis of Presentation, Consolidation and the Use of Estimates

6 Months Ended

Jun. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation, Consolidation and the Use of Estimates

Basis of Presentation, Consolidation and the Use of Estimates

The accompanying unaudited condensed consolidated financial statements of Ultimate have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The information in this quarterly report should be read in conjunction with Ultimate’s audited consolidated financial statements and notes thereto included in Ultimate’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on February 28, 2013 (the “Form 10-K”).

The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting only of normal, recurring adjustments) which are, in the opinion of Ultimate’s management, necessary for a fair presentation of the information for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Interim results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of operating results for the full fiscal year or for any future periods.

The unaudited condensed consolidated financial statements reflect the financial position and operating results of Ultimate and include its wholly-owned subsidiaries.  Intercompany accounts and transactions have been eliminated in consolidation.

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Prepaid Expenses and Other Current Assets (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Prepaid Expense and Other Assets, Current [Abstract]
Prepaid commissions	$ 18,077	$ 16,558
Other Prepaid Expense	5,488	4,468
Other Assets	6,366	4,923
Total prepaid expenses and other current assets	$ 29,931	$ 25,949

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Stock-Based Compensation (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Aggregate number of shares of Common Stock available for issuance (in shares)	1,634,154		1,634,154
Non-cash stock-based compensation expense	$ 7,778	$ 4,863	$ 15,375	$ 9,217
Net cash proceeds from the exercise of stock options			5,706	5,298
Excess tax benefits from stock-based payments			8,623	3,302
Cost of recurring revenues [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Non-cash stock-based compensation expense	973	638	1,837	1,151
Cost of services revenues [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Non-cash stock-based compensation expense	864	665	1,824	1,166
Sales and marketing [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Non-cash stock-based compensation expense	3,185	1,772	6,281	3,446
Research and development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Non-cash stock-based compensation expense	816	692	1,586	1,316
General and administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Non-cash stock-based compensation expense	1,940	1,096	3,847	2,138
Stock Options [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total fair value of options vested	0	0	0	0
Net cash proceeds from the exercise of stock options	2,800	2,500	5,700	5,300
Excess tax benefits from stock-based payments	$ 4,300	$ 2,400	$ 8,600	$ 3,300

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2013	Jun. 30, 2012
Current Assets:
Allowance for doubtful accounts	$ 575	$ 475
Stockholders' equity:
Preferred Stock, par value	$ 0.01	$ 0.01
Preferred Stock, shares authorized	2,000,000	2,000,000
Preferred Stock, shares issued	0	0
Preferred Stock, shares outstanding	0	0
Common Stock, par value	$ 0.01	$ 0.01
Common Stock, shares authorized	50,000,000	50,000,000
Common Stock, shares issued	31,863,119	31,396,498
Treasury Stock, shares	4,053,835	4,053,835
Series A Junior Participating Preferred Stock [Member]
Stockholders' equity:
Preferred Stock, par value	$ 0.01	$ 0.01
Preferred Stock, shares authorized	500,000	500,000
Preferred Stock, shares issued	0	0
Preferred Stock, shares outstanding	0	0

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Computer Software Development Costs

6 Months Ended

Jun. 30, 2013

Research and Development [Abstract]

Capitalized Software

Computer Software Development Costs

We capitalize computer software development costs related to software developed for external use in accordance with ASC 985-20, Costs of Software to Be Sold, Leased, or Marketed ("ASC 985-20"). There were no research and development expenses capitalized under ASC Topic 985-20 during the six months ended June 30, 2013 and during the six months ended June 30, 2012. Annual amortization is based on the greater of the amount computed using (a) the ratio that current gross revenues for the related product bears to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on.

Capitalized software is amortized using the straight-line method over the estimated useful lives of the assets, which are typically 5 years.  Ultimate evaluates the recoverability of capitalized software based on estimated future gross revenues reduced by the estimated costs of completing the products and of performing maintenance and customer support.  If Ultimate’s gross revenues were to be significantly less than its estimates, the net realizable value of Ultimate’s capitalized software intended for sale would be impaired, which could result in the write-off of all or a portion of the unamortized balance of such capitalized software.

Capitalized software and accumulated amortization of capitalized software as of June 30, 2013 and December 31, 2012 were as follows (in thousands):

	As of June 30, 2013			As of December 31, 2012
Capitalized software	$	11,342		$	11,342
Less:  accumulated amortization	(11,137		)	(10,834		)
Capitalized software, net	$	205		$	508

Amortization of capitalized software was $0.2 million and $0.3 million for the three and six months ended June 30, 2013, respectively, and $0.3 million and $0.7 million for the three and six months ended June 30, 2012, respectively. Amortization of capitalized software is included with cost of recurring revenues in the unaudited condensed consolidated statements of income.

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Statement of Other Comprehensive Income [Abstract]
Net Income	$ 4,902	$ 2,653	$ 9,422	$ 3,677
Unrealized (loss) gain on investments in marketable available-for-sale securities, net of income tax expense of $1 for the three months ended June 30, 2013 and June 30, 2012 and net of income tax benefit of $1 for the six months ended June 30, 2012. There was no income tax effect for the six months ended June 30, 2013	(3)	1	(4)	(2)
Unrealized (loss) on foreign currency translation adjustments	(516)	(212)	(780)	(76)
Other comprehensive (loss), net of tax	(519)	(211)	(784)	(78)
Comprehensive income	$ 4,383	$ 2,442	$ 8,638	$ 3,599

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Current Assets:
Cash and cash equivalents	$ 81,193	$ 58,817
Investments in marketable securities	7,934	9,223
Accounts receivable, net of allowance for doubtful accounts of $575 for 2013 and $475 for 2012	70,713	70,774
Prepaid expenses and other current assets	29,931	25,949
Deferred tax assets, net	1,372	1,372
Total current assets before funds held for customers	191,143	166,135
Funds held for customers	443,875	281,007
Total current assets	635,018	447,142
Property and equipment, net	46,684	38,068
Capitalized software, net	205	508
Goodwill	3,025	3,025
Investments in marketable securities	1,947	1,311
Other assets, net	16,033	16,687
Deferred tax assets, net	19,487	18,543
Total assets	722,399	525,284
Current liabilities:
Accounts payable	6,368	7,584
Accrued expenses	18,522	15,055
Deferred revenue	93,142	90,674
Capital lease obligations	2,764	2,968
Other borrowings	2,258	2,311
Total current liabilities before customer funds obligations	123,054	118,592
Customer funds obligations	443,875	281,007
Total current liabilities	566,929	399,599
Deferred revenue	881	1,302
Deferred rent	2,622	2,777
Capital lease obligations	2,094	2,469
Other borrowings	926	2,601
Income taxes payable	1,866	1,866
Total liabilities	575,318	410,614
Stockholders' equity:
Preferred Stock, $.01 par value, 2,000,000 shares authorized, no shares issued or outstanding	0	0
Common Stock, $.01 par value, 50,000,000 shares authorized, 31,863,119 and 31,396,498 shares issued as of 2013 and 2012, respectively	319	314
Additional paid-in capital	289,898	266,130
Accumulated other comprehensive (loss) income	(675)	109
Accumulated deficit	(23,917)	(33,339)
Stockholders' equity before treasury stock	265,625	233,214
Treasury stock, 4,053,835 shares, at cost, as of 2013 and 2012	(118,544)	(118,544)
Total stockholders’ equity	147,081	114,670
Total liabilities and stockholders’ equity	722,399	525,284
Series A Junior Participating Preferred Stock [Member]
Stockholders' equity:
Series A Junior Participating Preferred Stock, $.01 par value, 500,000 shares authorized, no shares issued or outstanding	$ 0	$ 0

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Computer Software Development Costs (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Property, Plant and Equipment [Line Items]
Estimated useful lives (in years)			5 years
Capitalized software, net	$ 205,000		$ 205,000		$ 508,000
Capitalized software	200,000	300,000	300,000	700,000
Capitalized software [Member]
Property, Plant and Equipment [Line Items]
Capitalized software	11,342,000		11,342,000		11,342,000
Less: accumulated amortization	(11,137,000)		(11,137,000)		(10,834,000)
Capitalized software, net	$ 205,000		$ 205,000		$ 508,000

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Non-cash stock-based compensation expense

The following table sets forth the non-cash stock-based compensation expense resulting from stock-based arrangements that was recorded in our unaudited condensed consolidated statements of income for the periods indicated (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
Non-cash stock-based compensation expense:
Cost of recurring revenues	$	973	$	638	$	1,837	$	1,151
Cost of services revenues	864		665		1,824		1,166
Sales and marketing	3,185		1,772		6,281		3,446
Research and development	816		692		1,586		1,316
General and administrative	1,940		1,096		3,847		2,138
Total non-cash stock-based compensation expense	$	7,778	$	4,863	$	15,375	$	9,217

Summary of stock option activity

There were no stock options granted during the three and six months ended June 30, 2013.  The following table summarizes stock option activity (for previously granted stock options) for the six months ended June 30, 2013 (in thousands, except per share amounts): 

Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2012	1,473		$	22.83	3.80	$	105,447
Granted	—		$	—	—	—
Exercised	(319	)	$	17.89	—	—
Forfeited or expired	—		$	—	—	—
Outstanding at June 30, 2013	1,154		$	24.20	3.60	$	107,458
Exercisable at June 30, 2013	1,154		$	24.20	3.60	$	107,458

Summary of restricted stock award and restricted stock unit activity

The following table summarizes restricted stock award and restricted stock unit activity for the six months ended June 30, 2013 (in thousands, except per share amounts): 

	Restricted Stock Awards				Restricted Stock Unit Awards
	Shares		Weighted Average Grant Date Fair Value		Shares
Outstanding at December 31, 2012	998		$	64.81	509
Granted	12		$	102.06	193
Vested and Released	(37	)	$	28.50	(180	)
Forfeited or expired	(31	)	$	77.92	(13	)
Outstanding at June 30, 2013	942		$	66.28	509

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Prepaid Expenses and Other Current Assets

6 Months Ended

Jun. 30, 2013

Prepaid Expense and Other Assets, Current [Abstract]

Prepaid Expenses and Other Current Assets

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of June 30, 2013 and December 31, 2012 consist of the following (in thousands):

	As of June 30, 2013		As of December 31, 2012
Prepaid commissions	$	18,077	$	16,558
Other prepaid expenses	5,488		4,468
Other current assets	6,366		4,923
Total prepaid expenses and other current assets	$	29,931	$	25,949

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Earnings Per Share (Details) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Earnings Per Share [Abstract]
Basic weighted average shares outstanding	27,735	26,655	27,606	26,524
Effect of dilutive equity instruments	1,140	1,626	1,206	1,670
Dilutive weighted average shares outstanding	28,875	28,281	28,812	28,194
Options to purchase shares of Common Stock and other stock-based awards outstanding which are not included in the calculation of diluted income per share because their impact is anti-dilutive	0	0	5	2

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Foreign Currency

6 Months Ended

Jun. 30, 2013

Foreign Currency [Abstract]

Foreign Currency

Foreign Currency

The financial statements of Ultimate’s foreign subsidiary, The Ultimate Software Group of Canada, Inc. (“Ultimate Canada”), have been translated into U.S. dollars.  The functional currency of Ultimate Canada is the Canadian dollar.  Assets and liabilities are translated into U.S. dollars at period-end exchange rates.  Income and expenses are translated at the average exchange rate for the reporting period.  The resulting translation adjustments, representing unrealized gains or losses, are included in accumulated other comprehensive (loss) income, a component of stockholders’ equity.  Realized gains and losses resulting from foreign exchange transactions are included in total operating expenses in the unaudited condensed consolidated statements of income. There were no significant reclassifications of realized gains and losses resulting from foreign exchange transactions to the unaudited condensed consolidated statements of income for the three and six months ended June 30, 2013 and June 30, 2012.

For the three and six months ended June 30, 2013, Ultimate had cumulative unrealized translation losses of $0.5 million and $0.8 million, respectively. For the three and six months ended June 30, 2012, Ultimate had cumulative unrealized translation losses of $0.2 million and $0.1 million, respectively. Included in accumulated other comprehensive (loss) income, as presented in the accompanying unaudited condensed consolidated balance sheets, are $0.7 million of unrealized translation losses at June 30, 2013 and $0.1 million of unrealized translation gains at December 31, 2012.

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Property and Equipment

6 Months Ended

Jun. 30, 2013

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which range from 2 to 20 years. Leasehold improvements and assets under capital leases are amortized over the shorter of the estimated useful life of the asset or the term of the lease, which range from 3 to 15 years. Maintenance and repairs are charged to expense when incurred; betterments are capitalized. Upon the sale or retirement of assets, the cost, accumulated depreciation and amortization are removed from the accounts and any gain or loss is recognized.

Property and equipment as of June 30, 2013 and December 31, 2012 consist of the following (in thousands):

	As of June 30, 2013			As of December 31, 2012
Property and equipment	$	134,507		$	120,390
Less:  accumulated depreciation and amortization	(87,823		)	(82,322		)
Property and equipment, net	$	46,684		$	38,068

We capitalize computer software development costs related to software developed for internal use in accordance with Accounting Standards Codification ("ASC") Topic 350-40, Intangibles Goodwill and Other-Internal Use Software. During the three and six months ended June 30, 2013, we capitalized $4.0 million and $7.3 million, respectively, of computer software development costs related to a development project to be sold in the future as a cloud product only. There were no such costs capitalized in the three and six months ended June 30, 2012. These capitalized costs are included with computer equipment in property and equipment in the unaudited condensed consolidated balance sheet and purchases of property and equipment in the unaudited condensed consolidated statement of cash flows. Internal-use software is amortized on a straight-line basis over its estimated useful life, generally three to five years, commencing after the software development is substantially complete and the software is ready for its intended use. At each balance sheet date, we evaluate the useful lives of these assets and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities:
Net Income	$ 9,422	$ 3,677
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	7,742	6,352
Provision for doubtful accounts	1,131	411
Non-cash stock-based compensation expense	15,375	9,217
Income taxes	7,679	3,525
Excess tax benefit from stock-based payments	(8,623)	(3,302)
Changes in operating assets and liabilities:
Accounts receivable	(1,070)	2,108
Prepaid expenses and other current assets	(3,982)	(1,511)
Other assets	654	(746)
Accounts payable	(1,216)	1,377
Accrued expenses and deferred rent	3,312	3,321
Deferred revenue	2,047	(1,713)
Net cash provided by operating activities	32,471	22,716
Cash flows from investing activities:
Purchases of property and equipment	(14,069)	(7,448)
Purchases of marketable securities	(6,800)	(7,385)
Maturities of marketable securities	7,452	5,997
Net purchases of securities with customer funds	(162,868)	(39,024)
Net cash used in investing activities	(176,285)	(47,860)
Cash flows from financing activities:
Excess tax benefits from stock-based payments	8,623	3,302
Shares acquired to settle employee tax withholding liability	(6,693)	(4,328)
Principal payments on capital lease obligations	(1,803)	(1,613)
Repayments of other borrowings	(1,728)	0
Net increase in customer fund obligations	162,868	39,024
Net proceeds from issuances of Common Stock	5,706	5,298
Net cash provided by financing activities	166,973	41,683
Effect of exchange rate changes on cash	(783)	(76)
Net increase in cash and cash equivalents	22,376	16,463
Cash and cash equivalents, beginning of period	58,817	46,149
Cash and cash equivalents, end of period	81,193	62,612
Supplemental disclosure of cash flow information:
Cash paid for interest	176	138
Cash paid for income taxes	265	272
Supplemental disclosure of non-cash financing activities:
Capital Lease Obligations Incurred	$ 1,200	$ 2,400

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Stock-Based Compensation Stock-Based Compensation (Details 1) (USD $)	6 Months Ended	12 Months Ended	3 Months Ended	6 Months Ended	3 Months Ended					6 Months Ended	3 Months Ended		6 Months Ended
	Jun. 30, 2013 Y	Dec. 31, 2012	Jun. 30, 2013 Restricted Stock [Member]	Jun. 30, 2013 Restricted Stock [Member]	Jun. 30, 2013 Restricted Stock [Member] Non-employee Directors [Member]	Jun. 30, 2012 Restricted Stock [Member] Non-employee Directors [Member]	Jun. 30, 2013 Restricted Stock [Member] Officers or Employees [Member]	Jun. 30, 2013 Restricted Stock Units (RSUs) [Member]	Jun. 30, 2012 Restricted Stock Units (RSUs) [Member]	Jun. 30, 2013 Restricted Stock Units (RSUs) [Member]	Jun. 30, 2013 Stock Options [Member]	Jun. 30, 2012 Stock Options [Member]	Jun. 30, 2013 Stock Options [Member]	Jun. 30, 2012 Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding at beginning of period (in shares)	1,473,000
Granted (in shares)	0
Exercised (in shares)	(319,000)
Forfeited or expired (in shares)	0
Outstanding at end of period (in shares)	1,154,000	1,473,000
Exercisable at end of period (in shares)	1,154,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Outstanding at beginning of period (in dollars per share)	$ 22.83
Granted (in dollars per share)	$ 0.00
Exercised (in dollars per share)	$ 17.89
Forfeited or expired (in dollars per share)	$ 0.00
Outstanding at end of period (in dollars per share)	$ 24.20	$ 22.83
Exercisable at end of period (in dollars per share)	$ 24.20
Weighted Average Remaining Contractual Term [Abstract]
Outstanding at beginning of period (in years)	3 years 7 months 6 days	3 years 9 months 18 days
Granted (in years)	0.00
Exercised (in years)	0.00
Forfeited or expired (in years)	0.00
Outstanding at end of period (in years)	3 years 7 months 6 days	3 years 9 months 18 days
Exercisable at end of period (in years)	3 years 7 months 6 days
Aggregate Intrinsic Value [Abstract]
Outstanding at beginning of period	$ 105,447,000
Granted	0
Exercised	0
Forfeited or expired	0
Outstanding at end of period	107,458,000	105,447,000
Exercisable at end of period	107,458,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding at beginning of period (in shares)				998,000						509,000
Granted (in shares)				12,000	5,251	5,501		11,100	15,317	193,000
Vested and Released (in shares)				37,000	9,580	1,920	16,187	14,035	12,604	180,000
Forfeited or expired (in shares)				(31,000)						(13,000)
Outstanding at end of period (in shares)			942,000	942,000				509,000		509,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Outstanding at beginning of period (in dollars per share)				$ 64.81
Granted (in dollars per share)				$ 102.06
Vested and Released (in dollars per share)				$ 28.50
Forfeited or expired (in dollars per share)				$ 77.92
Outstanding at end of period (in dollars per share)			$ 66.28	$ 66.28
Total intrinsic value of options exercised											14,400,000	11,700,000	27,400,000	21,700,000
Total fair value of options vested											0	0	0	0
Total unrecognized compensation costs			41,900,000	41,900,000				30,600,000		30,600,000	0		0
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition			2 years 2 months 12 days					1 year 10 months 24 days
Shares retained by company an not issued, in satisfaction of employee withholding tax requirements applicable to payment of awards (in shares)			5,625					4,856	4,153
Aggregate amount of shares retained by company and not issued			$ 400,000					$ 500,000	$ 300,000
Shares retained by company and not issued, in satisfaction of employee withholding tax requirements applicable to payment of awards (in shares)			10,562					9,179	8,451

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2013

Property, Plant and Equipment [Abstract]

Property and equipment

Property and equipment as of June 30, 2013 and December 31, 2012 consist of the following (in thousands):

	As of June 30, 2013			As of December 31, 2012
Property and equipment	$	134,507		$	120,390
Less:  accumulated depreciation and amortization	(87,823		)	(82,322		)
Property and equipment, net	$	46,684		$	38,068

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Earnings Per Share

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted average number of common shares outstanding (the denominator) for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

The following is a reconciliation of the shares used in the computation of basic and diluted net income per share for the three and six months ended June 30, 2013 and 2012 (in thousands):

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012
Basic weighted average shares outstanding	27,735	26,655	27,606	26,524
Effect of dilutive equity instruments	1,140	1,626	1,206	1,670
Dilutive weighted average shares outstanding	28,875	28,281	28,812	28,194
Options to purchase shares of Common Stock and other stock-based awards outstanding which are not included in the calculation of diluted income per share because their impact is anti-dilutive	—	—	5	2

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Reconciliation of shares used in the computation of basic and diluted net income per share

The following is a reconciliation of the shares used in the computation of basic and diluted net income per share for the three and six months ended June 30, 2013 and 2012 (in thousands):

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2013	2012	2013	2012
Basic weighted average shares outstanding	27,735	26,655	27,606	26,524
Effect of dilutive equity instruments	1,140	1,626	1,206	1,670
Dilutive weighted average shares outstanding	28,875	28,281	28,812	28,194
Options to purchase shares of Common Stock and other stock-based awards outstanding which are not included in the calculation of diluted income per share because their impact is anti-dilutive	—	—	5	2

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Prepaid Expenses and Other Current Assets (Tables)

6 Months Ended

Jun. 30, 2013

Prepaid Expense and Other Assets, Current [Abstract]

Prepaid expenses and other current assets

Prepaid expenses and other current assets as of June 30, 2013 and December 31, 2012 consist of the following (in thousands):

	As of June 30, 2013		As of December 31, 2012
Prepaid commissions	$	18,077	$	16,558
Other prepaid expenses	5,488		4,468
Other current assets	6,366		4,923
Total prepaid expenses and other current assets	$	29,931	$	25,949

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Document And Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 02, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	Ultimate Software Group Inc
Entity Central Index Key	0001016125
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		27,835,466
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013

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Computer Software Development Costs (Tables)

6 Months Ended

Jun. 30, 2013

Research and Development [Abstract]

Capitalized software

Capitalized software and accumulated amortization of capitalized software as of June 30, 2013 and December 31, 2012 were as follows (in thousands):

	As of June 30, 2013			As of December 31, 2012
Capitalized software	$	11,342		$	11,342
Less:  accumulated amortization	(11,137		)	(10,834		)
Capitalized software, net	$	205		$	508